On 15 October 2018, the Ministry of Housing, Communities and Local Government launched a consultation paper, Implementing reforms to the leasehold system in England as a part of the Government’s ongoing legislative reforms to tackle problems in the leasehold market.
In February 2017, the Government’s White Paper Fixing our broken housing market identified the need to improve fairness and transparency in the leasehold market and overcome loopholes harming the consumer. This was followed by the Government’s consultation in December 2017 to ban the sale of leasehold houses and onerous ground rents (see our Law-Now for more on this).
The consultation paper sets out the Government’s four key areas of reform and seeks views on the following:
1. Implementing a ban on unjustified use of leasehold for new houses
The number of leasehold houses has more than doubled. It is considered that there is no real justification for this, other than enabling developers or freeholders to benefit from receiving an income from leaseholders by way of a ground rent. In December 2017, Government announced its plans to ban such misuse and it has now identified ways to do this, including creating what it regards as a workable definition of a house and restricting the ability to register a lease of a house with HM Land Registry to better protect owners of houses from being exploited to pay a ground rent.
2. Implementing the reduction of future ground rents to a nominal financial value
Whilst the Government agrees that leaseholders should pay a consideration, they propose this nominal sum (i.e. ground rent) should be capped at £10 per annum, throughout the lease term.
The new cap will apply for all new leases (with the exception of shared ownership properties and community-led housing) and will include a surrender and re-grant of an existing lease.
3. Measures to ensure that the charges that freeholders must pay towards the maintenance of communal areas are fairer and more transparent
Many freeholder owners of houses are required to contribute towards charges for maintenance of and services provided to developments. However, as freeholders rather than leaseholders, they do not have the ability to challenge the reasonableness of the service charges levied and the standards of the services provides. The Government encourages views on the introduction of such rights and the ability of freeholders to appoint a new manager and change the service providers, by making an application to the tribunal.
4. Measures to improve the sale of leasehold properties
The Government also proposes to introduce a fixed time scale in which managing agents and freeholders provide leasehold information to facilitate quicker sales of leasehold properties. A maximum fee for providing this information will also be introduced.
In the consultation paper, the Secretary of State for Housing, Communities and Local Government says, “Now I intend to deliver our promises”. This demonstrates the Government’s strong stance on implementing legislative changes to the leasehold market and the shift to better protect consumers and their rights as homeowners.
These proposals relate to England only. The deadline to respond to the consultation paper is 26 November 2018.