Leasehold reforms announced by the Government

In June 2019 the Ministry of Housing, Communities and Local Government released a response to year-long enquiries into practices in the leasehold sector. In a 71 page report the Government address a wide range of matters and propose sweeping changes to the way that leasehold property is held.

These proposals are released as The Competition and Markets Authority (CMA) formally launch an investigation into whether consumers are being treated fairly when buying their home. According to George Lusty, Senior Director at the CMA their investigation “will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future”.

It is apparent that leasehold property ownership has been on the Government’s radar for some time, especially as “leasehold nightmare” stories have been on the rise.

What are the Government’s proposals?

Proposals include, but are not limited to:

• Ground Rents: legislating to restrict ground rents to a peppercorn (£0), rather than be capped at £10 per annum. Exemptions will be retirement and community properties, specific financial lease products (e.g. Sharia compliant) and mixed use schemes. Shared ownership leases will not be exempted.
• New build houses: seeking to implement a ban on the registration of new long leases (over 21 years) for houses. If a lease is found to be contrary to the ban, the applicant will be entitled to zero-cost enfranchisement.
• Equal rights to freeholders: the proposal is to legislate to give freeholders on private and mixed tenure estates equivalent rights to leaseholders to challenge the reasonableness of estate rent charges and to give equal control and input into estate management.
• Providing information to leaseholders (management packs): setting a turnaround time of no more than 15 working days to provide leasehold information to a prospective buyer and to bring forward legislation to make this a statutory requirement. Legislation will set a maximum fee of £200 plus VAT for producing a management leasehold information pack (LPE1).

The CMA

The Competition Act 1998 and The Consumer Rights Act 2015 grant the CMA broad powers to investigate companies and entire markets where there are suspected unfair trading practices or they are suspected to be anti-competitive. The CMA is an independent non-ministerial department although its findings can be persuasive to future lawmakers.

When a large proportion of available property is only available on leasehold tenure (i.e. vast new-build developments or in urban areas), it is a concern that sellers and developers are taking advantage of consumers’ lack of choice to impose unfair terms. The areas of particular concern include ground rents, permission fees and service charges along with mis-selling.

A view from the profession

A number of the Government proposals are wholly welcome, for example mandating and expediting the production of management packs will surely reduce the amount of time and cost involved in a conveyance and provide buyers with the information needed to avoid a “leasehold nightmare”.

In these more extraordinary cases, where ground rents can be set to double every few years amounting to unmanageable sums, it is clear that an intervention of some nature is required.

The actual date when these changes will be implemented is still to be announced and until the proposals crystalise into legislation, when buying or selling a leasehold property, we advise you to contact our Residential Property team for guidance and legal advice in the first instance.