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Is leasehold reform on the way?

Thursday 31 May 2018

In 2016, news broke of the leasehold scandal which saw thousands of homebuyers trapped in unsellable new-build houses, faced with spiralling costs and onerous ground rent fees.

After years of pressure from campaigners, the then communities secretary, now Home Secretary Sajid Javid MP, promised to take action against unreasonable leasehold practices, including a ban on the sale of new-build leasehold homes, and measures to curb onerous ground rent terms that some developers hid in contracts.

Subsequently, the Government undertook a consultation looking at tackling unfair practices in the leasehold market (you can read our response here) and made a commitment to publish their report before Parliament's summer recess. But with the recent ministerial changes at the Department for Communities and Local Government there is growing concern that this timeframe may be delayed, and the Government is now coming under increased pressure to publish its final report by July after it emerged that the number of houses sold under leasehold agreements shot up in 2017.

Since announcing a crackdown on unfair and abusive practices, a range of new measures have been proposed by government to end abuse of the leasehold system. These include a mandatory code of practice to stop managing agents from flouting the law and a new system to help leaseholders challenge unfair fees, to name a few.

But whilst the Government deliberates reform of leasehold laws, the question of retrospect is still very much up in the air. There have been suggestions that the ban on the sale of leasehold houses will be backdated to December 2017, which could cause huge issues for developers who contracted to buy a leasehold site prior to this date, but which actually purchased the site after it.

Labour Party politician Jim Fitzpatrick also raised the issue of the five million or so leaseholders who will not be covered by future regulation and legislation, and who are looking to the Government to address their concerns. The Law Commission has started work in this area, and following a consultation on its 13th Programme of Law Reform, published its terms of reference looking at the issues of leasehold enfranchisement and proposes a move towards commonhold as an alternative form of ownership.

Earlier this month leasehold reform campaigner Louie Burns welcomed the publication of the Law Commission's terms of reference, but cautioned that it is likely to be many years before legislative reforms are brought before Parliament. Commenting on the landmark ruling in the case of Mundy v. the Sloan Stanley Estate, which saw the court of appeal dismiss the argument for a radically different way of calculating lease extensions and freehold acquisitions earlier this year, he said it was a “devastating outcome”, dealing yet another heavy blow for leaseholders.

Sebastian O’Kelly, a trustee at the Leasehold Knowledge Partnership charity, said: “There’s been a disgraceful exponential growth in the sale of new leasehold properties in recent years and housebuilders have cheated their former customers by selling them tenancies which provide a considerable income for the anonymous speculators who own the freehold. There's no excuse for selling houses under leasehold agreements except to rip people off.”

And this comes as UK housebuilder Persimmon, who were caught up in the leasehold scandal, boasted £2.76 billion in revenue for the first quarter of 2018. The company also revealed that it had sold 9,048 new homes this year, up from 8,928 over the same period last year, with an average selling price of £236,500 - that's an increase of £7,000 per property since 2017.

Meanwhile Bellway has revealed their half-year pre-tax profit leapt 16.6 per cent and that it is on track to deliver record sales for the full year.

And Persimmon and Bellway aren't the only ones congratulating themselves, Taylor Wimpey has said it expects to see good demand this year despite a small dip in sales. The housebuilder released its first quarter trading update last month, which showed their average private sales dropped to 0.85 per outlet per week, down from 0.93 in the same period last year. However Taylor Wimpey remain positive, stating that it “remains on track” to meet expectations for the year due to consistent demand.