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Urgent reform to leasehold needed

Tuesday 19 March 2019

In a report published today, 19 March 2019, the Housing, Communities and Local Government Committee has called for wide ranging reforms to the leasehold system.

The Committee established an inquiry to build on the work being carried out by the Law Commission and to find out whether the Government’s proposed leasehold reforms went far enough.

In October 2018, the Government launched a consultation proposing to cap ground rents on new-build leasehold properties at £10 per year, require most new-build houses be sold as freehold, and make it easier for tenants’ associations to be formally recognised by freeholders.

Campaigning

NAEA Propertymark provided written evidence to the Committee in September 2018, arguing that the Government’s programme of work on residential leasehold reform must go further to ensure developers no longer build on land when they do not own the freehold and put measures in place to restrict charges.

We also outlined that right of first refusal should be extended to houses and the procedure for right to manage must be simplified. Furthermore, we said the Government must ensure developers compensate leaseholders to remedy onerous clauses and purchasers of new build homes have access to an ombudsman scheme.

Looking to the future we believe that regulation of the property sector and better use of technology through a digital property logbook can empower new and existing leaseholders.

Committee conclusions

The Committee has concluded in its Report that it would be legally possible for the Government to introduce legislation to remove onerous ground rents in existing leases. Other measures include:

  • Existing ground rents should be limited to 0.1% of the present value of a property, up to a maximum of £250 per year.
  • The Government should revert to its original plan and require ground rents on newly-established leases to be set at a peppercorn (i.e. zero financial value).
  • The Competition and Markets Authority should investigate mis-selling in the leasehold sector and make recommendations for appropriate compensation.
  • The Government needs to ensure that commonhold becomes the primary model of ownership of flats in England and Wales.
  • The Government should require the use of a standardised key features document, to be provided at the start of the sales process by a developer or estate agent.

Best practice

NAEA Propertymark has recently produced a new Understand Leasehold guide for members and delivers a training course to help agents get the latest comprehensive knowledge they need to successfully market and sell leasehold properties.

NAEA Propertymark is also leading the Transaction Reform Group in its quest to speed up the house buying and selling process. The group brings together agents, conveyancers, Land Registry and other interest partners. A key objective is to merge the TA6 form with the Property Information Questionnaire to ensure that consumers are both sale and market ready.

Commenting on the Report, Mark Hayward, Chief Executive, NAEA Propertymark, said:  

“We welcome today’s recommendations from the Housing, Communities and Local Government Committee to crackdown on unfair leasehold practices, as thousands of homeowners are facing escalating ground rents and left unable to sell their homes.

“Our Leasehold: A Life Sentence? report, launched last September, specifically looked at the problems surrounding leasehold house purchases, revealing that 62 per cent felt they were mis-sold their leasehold house and an overwhelming 94 per cent regretted buying a leasehold. We wholly support the recommendation for the Competition and Markets Authority (CMA) to investigate mis-selling in the sector, as for too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property. Additionally, the suggested requirement of a standardised key features document at the start of the sales process will help provide consumers with the clarity and transparency they need.

“When the Committee announced the consultation to improve the sector in October last year, we were clear this was only positive news for those looking to purchase a leasehold property in the future. We’re therefore pleased the Committee have noted that it is legally possible to introduce legislation to remove onerous ground rents in existing leases.”

Read the full Leasehold Reform report