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Proposed Leasehold Reform Bill

Friday 10 November 2017

On 7 November, Labour MP Justin Madders introduced a Private Members Bill to Parliament to establish provisions about the regulation of the purchase of freeholds by leaseholders.

The Leasehold Reform Bill - or as Madders suggests the more aptly named Leasehold Emancipation Bill - sets out a system to introduce a compensation scheme for current homeowners who have suffered under unfair leasehold terms.

As deputy chair of the All Party Parliamentary Group on Leasehold Reform, Madders welcomed the consultation on ending unfair leasehold practices, but stated there was little to suggest government planned to address the ongoing situation of leaseholders, many of whom feel trapped in their homes.

The Bill, which has gained much cross party support, highlights specific proposals for a fair and simple mechanism to help homeowners escape their current leasehold agreements.

Madders contextualised the issue by shining a light on homeowners who had bought new homes, only to find that the freehold had been sold to a third party. He condemned the spiralling sums of money that freeholders demand for the purchase of a freehold, and branded doubling ground rent clauses as "exorbitant", which he said were simply a "cash cow" for builders and freeholders. He pointed out that this also made it more difficult for a home owner to sell their property if their lease was unfair.

The proposed Bill calls for three measures of reform to leasehold legislation:

  1. Introduce a statutory pricing model to calculate the cost of a freehold purchase, which would be capped at 10 times the annual ground rent payable by the leaseholder;
  2. Make provision about the award of legal costs in leasehold property tribunal cases, so that the legal costs of the freeholder would no longer be borne by the leaseholder;
  3. Establish a compensation scheme for cases where leaseholders have received misleading particulars from sales agents or inadequate advice from solicitors which led to certain leasehold agreements.

Mr Madders has suggested a full independent inquiry into relationships between developers, freeholders, finance companies and conveyancers in order to establish how this system was allowed to develop and hold those responsible to account.

Louie Burns, Managing Director of Leasehold Solutions, said:

“We very much welcome the policies that Mr Madders advocates in his Private Members Bill, which are all very sensible, progressive reforms to leasehold legislation that would provide a tremendous benefit to leaseholders across the country.

“The introduction of a statutory pricing model for calculating the cost of a freehold acquisition, capped at 10 times the current annual ground rent, would provide greater transparency and ensure that leaseholders are treated consistently, which is simply not the case under the current laws.

“Further, the way that the value of a lease extension is currently calculated is very unclear and enables freeholders to force leaseholders to pay over the odds for their lease extension, or go through the costly process of challenging the freeholder at Tribunal.

“This legal bullying costs leaseholders millions of pounds every year and the Government over £30 million a year to run the Tribunals, all for the benefit of freeholders' wallets. Changing the calculation of a lease extension to something transparent and easy to calculate will save leaseholders and the tax payer millions in wasted costs.”

Sebastian O’Kelly, of the Leasehold Knowledge Partnership commented:

“Madders is absolutely right that this needs statutory intervention. I don’t think the Bill will be as high as PPI but it has caused at least 100,000 properties to be blighted, according to Nationwide figures.

“The aggravation and grief would however exceed the PPI scandal. Most people who unwittingly purchased PPI insurance on their credit card will have been inconvenienced but the leasehold issue is a different scale of grief.”

This was the first reading of the Bill under the Ten Minute Rule, and after being commended to the House was backed by all present MPs. The second reading will take place on Friday 2 February 2018.