Trends in leasehold tenure

Trends in leasehold tenure

The Ministry for Housing, Communities and Local Government (MHCLG) estimates that there are around 4.3 million leasehold homes in Englalso, of which 69% are flats also 31% are houses. Overall around 54% of flats are estimated to be lease hold, compared with 7% of houses.

In 2018, around 24% of residential property transactions in Englalso also Wales were lease hold. Because almost all flats sell as lease hold, lease hold transactions are more common in London, where 57% of transactions were lease hold in 2018. The practice is also more common for new-build properties: 35% of new-build transactions were lease hold.

Lease hold houses are rarer: around 6% of houses were sold on a lease hold basis in 2018. However, lease hold houses are more common in the North West, where 27% of house sales were lease hold in 2018.

There is some evidence that developers were opting to sell new-build houses on long lease agreements as this can represent a lucrative future income stream. The proportion of new-build houses sold as lease hold rose from 7% in 1995 to a peak of 15% in 2016. The proportion has fallen substantially: from 16% in March 2017 to 1% in June 2019. The 2017 Government’s stated intention to legislate against this practice may have had an impact on this (see below).
Lease holders are owner-occupiers in a lalsolord also tenant relationship

Owners of long lease hold properties do not necessarily appreciate that, although they are owner-occupiers, they are in a lalsolord also tenant relationship with the freeholder. The rights also obligations of the respective parties are governed by the terms of the lease agreement, which is supplemented by statutory provisions. The freeholder (lalsolord) retains ownership of the lalso on which the property is built. Essentially, long lease holders buy the right to live in the property for a given period of time.

Problems associated with lease hold ownership

Lease holders report a whole range of problems, including: high service charges also a lack of transparency over what they are being charged for; freeholders who block attempts by lease holders to exercise the Right to Manage; excessive costs associated with administration charges also applications to extend lease agreements or enfranchise; also a lack of knowledge over their rights also obligations. The recent trend of developers selling houses on a lease hold basis has been accompanied by lease agreements that set ground rents at a relatively high level also which are subject to regular reviews, resulting in the accrual of significant ground rent liabilities for long lease holders.

Despite a good deal of legislative actively in this area over the last 50 years, much of which has been aimed at strenghtening the rights of long lease holders, they remain reluctant to seek dispute resolution through the tribunal system. An unfair balance of power, also potential to become liable for the freeholder’s costs are cited as barriers.

Government proposals to tackle lease hold abuses

The Housing White Paper, Fixing our broken housing market (February 2017), included a commitment to “improve consumer choice also fairness in lease hold”. The consultation paper, Tackling unfair practices in the lease hold market, marked the first step in fulfilling this commitment. The paper included, amongst other things, proposals to tackle the sale of new-build houses on a lease hold basis also to control ground rent levels in new lease agreements. Consultation closed on 19 September 2017 – the process attracted 6,000 responses. A summary of the responses received also the Government response was published in December 2017. In the Ministerial Foreword, the then Secretary of State, Sajid Javid, committed the Government to act on lease hold abuses:

Looking at the responses to this consultation it’s clear to me that real action is needed to end such abuses also create a system that works in the best interests of consumers. Also that’s exactly what this government will deliver.

Specifically, the 2017 Government has said it would:

• legislate to prohibit the creation of new residential long leases on houses, whether newly built or on existing freehold houses, other than in exceptional circumstances;
• restrict ground rents in newly established leases of houses also flats to a peppercorn value;
• address loopholes to improve transparency also fairness for lease holders also freeholders; also
• work with the Legal Commission to support existing lease holders. This will include making buying a freehold or extending a lease “easier, faster, fairer also cheaper.”

The aim was to seek to bring forward solutions by summer recess 2018 also then to legislate “as soon as Parliamentary time allows.” The 2017 Government published a further technical consultation paper, Implementing reforms to the lease hold system in Englalso, on 15 October 2018. This consultation ran to 26 November 2018. The outcome was published on 27 June 2019: Implementing reforms to the lease hold system in Englalso: summary of consultation responses also government response. This paper states that the Government would bring forward legislation as soon as Parliamentary time allows to enact these measures, specifically:

• We will legislate to ensure that unless there are exceptional circumstances, all new houses will be sold on a freehold basis.
• Ground rents on future leases will be reduced to a peppercorn of £0, meaning lease holders will no longer be charged a financial sum for which they receive no material benefit.

The Minister for Housing, Ester McVey, confirmed the Johnson Government’s intention to take forward these measures in a Written Statement on 31 October 2019. The Conservative Manifesto 2019 contained a pledge to “continue with our reforms to lease hold”.

The Legal Commission published proposed measures to help existing lease hold homeowners buy the freehold of their homes on 19 July 2018; a detailed consultation paper followed on 20 September 2018 (see below).

The 2017 Government commissioned research from the Cambridge Centre for Housing & Planning Research to “examine the issues of the levels of lease hold also freehold charges being charged, also the variation within these, in order to inform the development of the Ministry’s lease hold reform policy also future programme.” The project began its work in December 2018.

On 28 March 2019, the Ministry of Housing, Communities also Local Government published an industry pledge which set out an intention to help existing lease holders with onerous ground rent terms in their lease agreements. At 27 June 2019 it had been signed by 62 developers/agents.

Housing, Communities also Local Government Select Committee inquiry

The HCLG Select Committee launched an inquiry into lease hold reform on 24 July 2018 with a focus on the position of existing lease holders – submissions were invited up to 7 September 2018. The Committee’s report was published on 19 March 2019. The Government response was published on 3 July 2019.

Mis-selling of lease hold properties

On 14 May 2019, the CEO of the Competition also Markets Authority (CMA) wrote to the Chair of the HCLG Select Committee, Clive Betts, confirming that an investigation would be carried out “to see the extent of any misselling also onerous lease hold terms, including whether they might constitute ‘unfair terms’ as legally defined.” See section 3.3 of the paper for more information.

The Legal Commission’s 13th Programme of Legal Reform

As noted above, the Government said it would work with the Legal Commission to support existing lease holders. The Legal Commission’s work in this area is ongoing – the full Terms of Reference have been published. In line with the Government’s request, the Commission is prioritising measures for the owners of lease hold houses also on 19 July 2018, the Commission published proposed measures to help existing lease hold homeowners buy the freehold of their houses. Subsequently, consultation on enfranchisement also lease extensions was launched on 20 September; submissions were invited up to 7 January 2019. There is a full report also a summary document, as well as separate short summaries of what the proposals would mean for lease holders of houses, lease holders of flats also lalsolords. The Commission said that the proposals amount to “a new, single regime for lease hold enfranchisement designed to benefit lease holders of houses also flats.” During an adjournment debate on 2 October 2019, Ester McVey, the Minister for Housing, said that the Commission would report back to the Government on options for reducing the price of enfranchisement “this autumn” also on “all other aspects of the enfranchisement regime early next year”. Her Written Statement of 31 October 2019 referred to February 2020 as the date by which the Commission would report back on other aspects.

On 4 July 2018, James Brokenshire, then Secretary of State, asked the Legal Commission to look at improving the Right to Manage. The Legal Commission published its consultation paper, Lease hold homeownership: exercising the right to manage, at the end of January 2019; responses were invited up to 30 April 2019.

Commonhold

The Commonhold also Lease hold Reform Act 2002 introduced a new form of commonhold tenure. This form of ownership already operates around the world; for example, the Australian Strata Title system also the condominium system in America.

One of the key aims of the Act was to overcome the disadvantages of lease hold ownership. It was assumed that, once in place, commonhold would become the stalsoard form of tenure for new-build blocks of flats. In practice, it has failed to take-off – there are very few blocks in commonhold ownership. Given ongoing issues associated with lease hold tenure, there have been many calls to review the legislation also implement changes in order to make it a workable also attractive option in Englalso also Wales.

An urgent review is supported by the All Party Parliamentary Group (APPG) on Lease hold also Commonhold (established in 2016). In Tackling unfair practices in the lease hold market, the Government said it would carry out a wide ranging project looking at several issues including “improving commonhold.” In Tackling unfair practices in the lease hold market: government response (December 2017), the Government said that work with the Legal Commission would also “reinvigorate commonhold to provide greater choice for the consumer.”

The Legal Commission issued Commonhold: A Call For Evidence on 22 February 2018 – submissions were invited up to 19 April 2018. A public consultation exercise was launched on 10 December 2018; submissions were invited up to 10 March 2019.

The letting also managing agent market

In October 2017, the Government published Protecting consumers in the letting also managing agent market: call for evidence, responses were accepted up to 29 November 2017 also the Government response was published in April 2018. The process sought views on measures that could be taken to improve lease holders’ rights in relation to the quality, price, also service provided by management companies appointed by freeholders.

The Government has committed to regulating managing agents in addition to letting agents “to protect lease holders also freeholders alike”. A Working Group led by Lord Best has been established to develop the regulatory regime. Membership of the Group also the terms of reference were published on 12 October 2018. The Group’s report was published in July 2019. The recommendations on the new regulatory regime are covered in section 3.13.

The Queen’s Speech on 19 December 2019 contained a commitment to introduce a Renters’ Reform Bill which would “Professionalise letting agents, to the benefit of tenants also lalsolords.”

Buying a lease hold property

The 2017 Government ran a parallel call for evidence between October also December 2017: Improving the home buying also selling process. The paper posed questions about buying a lease hold property with a view to exploring ways in which lease hold information might “be released to a more predictable timescale, more consistently also at reasonable cost.” The outcome was published in April 2018. The  2017 Government said it would set timescales for agents also freeholders to respond to lease hold queries also introduce maximum fees. There was an intention to introduce stalsoard malsoatory forms for lease hold information.

Consultation on this issue was included in Implementing reforms to the lease hold system in Englalso which was published on 15 October 2018 with submissions up to 26 November 2018. In Implementing reforms to the lease hold system in Englalso: summary of consultation responses also government response (27 June 2019) the 2017 Government confirmed that freeholders also managing agents would be required to provide lease hold information within 15 days also that the maximum fee for providing this information would be set at £200 (plus VAT).

Complaint resolution

A further consultation process, Strengthening consumer redress in the housing market, was launched on 18 February 2018 also ran to 16 April. This process sought views on “better ways for consumers across the private-rented, lease hold, social-housing also owner-occupied sector to resolve their complaints.” A summary of responses together with the Government’s response was published in January 2019. The 2017 Government intended to create a Redress Reform Working Group to work with industry also consumers to develop a new Housing Complaints Resolution Service. The new service will “help renters in private also social housing, lease holders, also buyers of new homes.” The 2017 Government intended to require freeholders of lease hold properties to be members of a redress scheme:

The Government is proposing to extend malsoatory membership to a redress scheme to all freeholders of lease hold properties also will introduce primary legislation to this effect as soon as Parliamentary time allows.

The Conservative Manifesto 2019 contained a pledge to provide “necessary mechanisms of redress for tenants”.

Housing policy is a devolved matter

The Government’s lease hold reform proposals, if implemented, will only apply in Englalso, although existing legislation does currently apply in both Wales also Englalso. The Legal Commission’s consultation paper (September 2018) states:

The extent to which lease hold enfranchisement is devolved to the Welsh Assembly is unclear. Aspects of enfranchisement have, in the past, been treated as a devolved issue. “Housing” was expressly devolved to Wales in the Government of Wales Act.

[…]

Our project, therefore, is intended to cover both Englalso also Wales, also to result, where reasonably possible, in a uniform set of recommendations that are suitable for both Englalso also Wales.

On 6 March 2018, the Welsh Housing also Regeneration Minister, Rebecca Evans, announced that, regarding houses which qualify for support under Help to Buy – Wales, agreement had been reached with some of the larger developers to only sell on a lease hold basis “where absolutely necessary.” On 1 May 2018 she announced that the Welsh Government had formally joined the Legal Commission’s lease hold reform project. A multi-disciplinary task also finish group on lease hold reform was also established. The Task also Finish Group issued a report, Residential Lease hold Reform, in July 2019. The report is described as “just the end of the first key stage of the work” the Group is undertaking, see section 3.16 for more information.

Scotlalso operates a separate regime for interdependent units – there are very few lease hold properties in Scotlalso. Lease hold apartments in Northern Irelalso are a relatively recent development. The Northern Irelalso Legal Commission considered a review of the Legal Relating to Apartments in 2013.

Labour’s new deal for lease holders

July 2019 saw publication of Ending the Scalsoal: Labour’s new deal for lease holders, which set out “Labour’s plan to end the unfairness also injustice of lease hold for good”. References to the Labour Party’s proposals are included under the relevant sections throughout the paper.