I’m writing this on the longest day of the year – the Summer Solstice –…
Organisations from across the legal, property, and mortgage sectors have called upon the Secretary of State for Levelling Up, Housing & Communities, Michael Gove MP, to begin implementing a series of measures already announced by the Government which would improve the lives of many leaseholders.
The organisations – which includes the Conveyancing Association (CA), The Society of Licensed Conveyancers (SLC), the Property Redress Scheme, IMLA, RPSA, PropertyMark, Hunters, Property Information Products, Love Surveying, The Guild of Property Professionals and ULS Technology – have written an Open Letter (below) to Mr Gove asking his Department to bring into law the measures already announced and/or supported by the Government over the last two to three years.
These include the implementation of the Law Commission Reports in leasehold enfranchisement, Right to Manage, and Commonhold, plus previously announced legislation on Leasehold Reform, reasonable fees and timescales for administrative activities, and managed freehold, which has yet to make the statute book.
The Legal Sector Group argues in its letter to Mr Gove that further delay will lead to further consumer detriment ‘given the exploitation [of leaseholders] continues and increases with every passing day’.
It calls the measures already announced and supported ‘generally non-contentious’ and wants to see the Government follow up quickly on the Leasehold Reform Bill – which aims to limit ground rents on long residential leases and was passed through the first stage of the House of Commons last month – with other Bills covering the measures which it says are needed.
Beth Rudolf, Director of Delivery at the Conveyancing Association, commented:
“At the recent CA Annual Conference, we were told that Mr Gove is still in listening mode in terms of improving the home buying and selling process, however when it comes to improving the lives of so many leaseholders, the Government has already done its listening and has outlined and supported a large number of measures which have full industry and market support, and would make a world of difference. In that sense, we are simply calling on the Government to fulfil its obligations in this area. By doing this we can ensure leaseholders can set in motion parts of the property-owning democracy that are simply not open to many of them, such as selling their properties or securing a mortgage. Plus, we can move towards a much fairer system for all – the hard work has effectively been done and it is now time to move these measures through to their natural legislative conclusion where they will make a huge difference.”
Sean Hooker, Head of Redress at the Property Redress Scheme, said:
“This is the time for Government action to restore the confidence of leaseholders, who currently feel like second-class citizens in the property world. The redress schemes deal with the frustrations of leaseholders on a daily basis but are often powerless to help. The balance of power must shift back towards the consumer. The measures in the proposals will create a robust framework of rights and remedies and restore balance and fairness to the system that has been eroded as the market has evolved and changed, since the existing laws were introduced.”
Simon Law, Chairperson of the Society of Licensed Conveyancers (SLC), said:
“The Society has been closely engaged with Government on leasehold reform, as well as the related issue of cladding, both directly and through the Home Buying and Selling Group for a number of years. We believe there is a once in a generation opportunity to make meaningful reform to leasehold title, to include a migration to commonhold where appropriate, which will benefit not only leaseholders but also landlords. Our joint letter to Michael Gove makes explicit the measures that would constitute meaningful reform, many of which the Government has already said are on its agenda. Bringing these measures together in a single document (which forms the Appendix to the letter) provides the basis for coherent reform.”
Angela Hesketh, Director of Conveyancing Transformation at ULS Technology, said:
“The need for reform is well overdue and has left consumers exposed to unfair practices and unnecessary cost and stress within the home owning and home moving process. It is time for the Government to legislate to support the absolute need for change to protect current and future homeowners.”
The Conveyancing Association
Berewyk Hall Court
Tel: 07825 386293
19th January 2022
The RT Hon Michael Gove MP
Secretary of State
Department for Levelling Up, Housing and Communities
2 Marsham Street,
Dear Mr Gove,
RE: LEASEHOLD REFORM PROPOSALS
We hope you are enjoying such a challenging and important role within the Government. It has been reassuring to see Government taking a more active role in resolving the issues effecting the consumers of the property industry, for example the consultation issued on 11th January 2022 on reforming the Leasehold and Commonhold Systems in England & Wales.
We are all delighted to be working with, and to be able to continue to support, the Department’s aims to improve the home-moving process. As part of this, it is key we resolve the unfairness and exploitation of owners of leaseholds and managed freehold property.
We, along with many others across the property industry, have worked with the Department to develop policies which will lead to real-world improvements, and we have publicly welcomed announcements in a number of areas.
However, we are disappointed the Government has yet to implement these measures given the exploitation continues and increases with every passing day. We would therefore urge you to include the already-announced measures in future legislative plans as soon as possible to avoid further blighting of leasehold and so-called ‘fleecehold’ property.
The research undertaken by, and on behalf of, the Government has delivered generally non-contentious recommendations many of which the Government has publicly supported. However, without the legislation to deliver the improvements, consumers continue to be impacted by the exploitation of their homes by third parties.
The Conveyancing Association and Home Buying & Selling Group (HBSG) consumer surveys in both 2017 and 2021 indicated buyers were not provided with material information, though 98% of them do want it, which has resulted in the mis-selling of property.
We therefore call upon the Government to deliver the implementation of:
- The Law Commission Reports dated 21st July 2020 on:
- Leasehold enfranchisement.
- Right to Manage.
- Regulation of Property Agents report dated 18th July 2019.
- Delivery of previously announced legislation:
- Leasehold Reform
- Removal of the ability to convert to an Assured Shorthold Tenancy under the Housing Act for ground rent over £250 (£1,000 inside London) pa on long leases.
- Reasonable fees and reasonable timescales for administrative activities:
- LPE1 maximum fee of £200 plus £50 refreshment fee.
- LPE1 response within 10 working days of payment.
- Jurisdiction for enforcement of the reasonable fee and timescale.
- Managed Freehold (‘Fleecehold’):
- Freehold owners having the same rights as leasehold owners, for example, to challenge unreasonable service charges/take on the right to manage.
- Removal of estate rentcharge owner’s right to create a long lease where there are rentcharges unpaid whether requested or not.
- Leasehold Reform
- Legislate for the provision of material information by the seller of property, prior to offer.
A full breakdown of proposals and reasoning behind them is attached. To provide clarity, we are in full support of the Building Safety Bill so long as the impacted leaseholders are adequately supported.
We would welcome the opportunity to discuss the issues outlined here in person with you, in order to get to the outcomes we all want to see as quickly as possible. We look forward to hearing from you, and thank you in anticipation of your assistance in this matter.
For and on behalf of the following property industry organisations
APPENDIX TO LETTER
- Reasonable Fees for Administrative Activities
- A requirement for reasonable fees for any administrative activity in any tenure – leasehold, freehold or commonhold.
- A tariff of fees for quantifiable activities, managed and set by an appropriate organisation such as RICS or by the Secretary of State within regulations, just as solicitor charging rates are set within the Civil Procedure Rules.
- Requirement for standardised documents to be created and mandated to reduce costs and delay generally in respect of notice of assignment, notice of charge, stock transfer, deed of covenant and certificate of compliance.
- Reasonable Timescales for Administrative Activities
- Create obligations for the lease administrator to provide the information required for the sale, for example, as set out in the Leasehold Property Enquiry Form (LPE1) to enable those marketing the property to comply with the Consumer Protection from Unfair Trading Regulations.
- Services and information to be provided within a reasonable period from receipt of payment, for example, 10 working days and if over that then to provide free of charge.
- If a required compliance certificate is not received within 10 working days of the conveyancer complying with the requirements then the conveyancer may complete a form at Land Registry to confirm they have complied and Land Registry will register the amendment to the register. This will reduce the registration gap and save wasted time and resource for Land Registry, the conveyancer, the lender and the lease administrator.
- Mandatory requirement for all freehold management or lease administrators to be part of a fit for purpose redress scheme.
- To enable HM Land Registry to disapply restrictions requiring a certificate of compliance confirming compliance with the terms of the lease, where a conveyancer can provide evidence of compliance in some other way or the terms of the lease are void, for example, a post-1995 lease requiring a deed of covenant.
- Unfair Lease Terms
- No new-build should have an initial lease term of less than 250 years.
- Rent review clauses should allow for no more than 50% increase in rent, or the difference in the RPI, each 10 years; whichever is the lesser. While it is argued that where there are shared facilities or maintenance requirements it is advantageous to keep the landlord on the scene and provide them with a return on the basis that an absent or insolvent landlord makes it hard to enforce covenants and sell properties, in fact it would be better if leaseholders had the automatic right to manage and acquire the freehold where a landlord has become absent.
- Unless there is a genuine requirement for shared maintenance, houses should not be leasehold and where they are should have rent set at a peppercorn level.
- Existing leases with unfair terms around escalating ground rents or unreasonable fees should retrospectively comply with the above requirements to prevent blighting the properties.
- Exit/event or transfer fees should only be recoverable where they will be directly credited to the reserve fund for that block. An exit or transfer fee which goes in part or in whole to the landlord, with no tangible benefit to the block in return, should be unenforceable.
- An estimate of the amount of the exit fee should be stated on the end of each service charge demand to try to keep owners and beneficiaries up to date as to what it means to them.
- Disapply the provisions of the Housing Act in respect of possession under Ground 8 of Schedule 2 of the Housing Act 1988 in long leases. This would bring it into line with the intentions of s.167 of the Commonhold and Leasehold Reform Act 2002 to prevent forfeiture for prescribed small amounts or over prescribed short periods.
- Overhaul of Tenure
- Review of Commonhold Regulations to make a viable alternative, with the protections equivalent to those afforded to leaseholds, for example, in respect of service charge dispute procedure implemented by the Landlord and Tenant Act 1985, with a view to outlaw leasehold and require Commonhold in newbuild and conversions when fit for purpose.
- Simplification of the process to extend the lease and buy the freehold, in the same way that the Long Leases Scotland Act 2012 converts leases with initial terms over 175 years – with 100 years left to run – into freeholds, leasehold houses could convert to freehold where there is no shared amenity element which would require a leasehold tenure.
- Lease extensions cause delay and abortive transactions. Extending leases outside of the Act means you are at the mercy of landlords who can charge above the going rate, impose unreasonable terms (for example, rent increase etc). Therefore, require standard and reasonable terms on lease extensions and set timescales for each step in the process.
- Bring the protections for owners of leasehold houses in line with those of leasehold flats, for example, provide for owners of leasehold houses to have the right of first refusal when the freehold is offered for sale.
- The consideration for a lease extension should be determined by one pre-set formula.
- Each party should bear their own costs for a lease extension or enfranchisement where there is a premium payable.
- Review Right to Manage to make it easier for tenants to take the responsibility on if a landlord won’t do their bit. It should not be necessary to involve a managing agent until the First Tier Tribunal has approved the right to manage in principal. The current system is too expensive for most developments.
- If a management company fails for leasehold flats and houses, the tenants should have the right to create a Right to Manage Management Company, failing which the landlord should take on the obligations of the management company until a new company can be established.
- Section 20 notice levels to be reviewed in line with inflation and thereafter set each year by RICS in line with inflation. This will reduce the administrative burden on managing agents which should reduce the cost of management.
- Housing Associations and Local Authorities to be required to comply with the same levels of reasonableness and fairness for administration fees and service charges, and their leases should be capable of statutory extension.
- Managed freehold property to be treated the same as leasehold in respect of the above points and the managed property form (FME1) to be mandatory.
- Buildings Insurance
- All landlords with obligations contained in the lease to insure should be required by statute to insure comprehensively for the full reinstatement value (for which they may obtain a surveyor’s opinion every five years) and for the risks identified in the UK Finance and Building Society Association Mortgage Lenders’ Handbook or their replacement. This will avoid the need for deeds of variation where there is a clause which is not compliant with the Lender’s Handbook which severely slows down transactions, increases costs and can lead to transactions falling through due to the inability of the buyer to satisfy the lender’s requirements.
- Lease Administrator to obtain at least three quotes from rated insurers for insurance to achieve the best premium possible, the quotes to be shared with the leaseholders and should contain a statement as to whether or not the insurance complies with the requirements of the Lenders’ Handbook.
- Management Regulation
- Regulations should be created for the protection, investment, management and calculation of the reserve fund on every leasehold or freehold management block.
- A reserve fund should be in place for any leasehold scheme containing two or more properties to ensure sufficient funds accumulate for foreseeable major works based on a five-year asset management plan.
- Management charges should be limited to 10% of routine service charges, or in the case of exceptional charges be proportionate to the work to which they relate, excluding payments into the reserve fund.
- Marketing of Properties
- Anyone marketing a Leasehold Property should order on listing, and provide as soon as possible to potential buyers, upfront information on:
- The remaining term of the lease and potential financial impact of it.
- The amount of ground rent payable.
- The nature of rent review clauses.
- The amount of the annual service charge.
- A menu of the charges imposed by the lease administrator for services in connection with the sale, ongoing ownership and purchase of the property, including any exit or transfer fee payable.
- The existence of a lease clause requiring exit or transfer fees on disposal
- Anyone marketing a Leasehold Property should order on listing, and provide as soon as possible to potential buyers, upfront information on:
For all property the seller should also provide:-
- The Buying and Selling Property Information, the Title and documents referred to in it, the Local Authority and Drainage & Water Authority and locality dependant searches and environmental information, along with the digital identify verification for the seller to prevent fraud.
NB THE EQUIVALENT PROTECTIONS SHOULD BE APPLIED TO ESTATE RENTCHARGES, FREEHOLD MANAGEMENT SCHEMES AND COMMONHOLD.