The Law Commission has announced radical new proposals to provide a fairer deal for leasehold home owners in England as it says that the law is currently failing them.
The Government is already consulting on banning the sale of homes on a leasehold basis after it emerged that leases are being sold on by developers to management companies who then charge home owners fees for simple thinks like changing a floor put up charges on an ever higher sliding scale as well as asking extortionate amounts to sell the lease.
Now the Law Commission says that there are a range of measures to help existing leasehold home owners buy the freehold of their houses and never face over the top charges again.
These include options for changing the valuation formula to make it easier for home owners to buy the freehold and removing the requirement that leaseholders must have owned their house for two years before making a claim.
‘The law is failing home owners. It is complex and expensive, and leads to unnecessary conflict, costs and delay. We’ve heard of untold stress caused to home owners who have had to put their lives on hold because of issues with their leases,’ said Law Commissioner Professor Nick Hopkins.
Leasehold ownership means that the buyer owns a property for a fixed number of years on a lease from a the freeholder and the Government has estimated that there are over four million leasehold properties across England alone including 1.4 million houses and it’s been suggested those figures are significantly underestimated.
Major concerns have been raised over this type of home ownership. More than 6,000 responses were submitted to the recent Government consultation on unfair leasehold practices. The vast majority of responses expressed their concerns about buying and living in a leasehold property.
Although enfranchisement rights give leaseholders the right to purchase the freehold of their property or to obtain an extended lease of their property the statutory enfranchisement process itself has been widely criticised.
Criticisms include the cost for leasehold home owners, the fact that there are different rules for leaseholders of houses and of flats, often with no logical reason for the distinction, and that negotiations tend to favour the leaseholds and the fact it is very complicated.
The Law Commission proposals for leasehold houses suggest that there should be options for reducing the price that leaseholders pay to the landlord such as by changing the formula used to calculate the cost.
It also suggests improving the right for leaseholders of houses to buy the freehold from their landlord, introducing an alternative right to purchase unlimited longer lease extensions without a ground rent of 125 or 250 years and making the enfranchisement procedure simpler to understand, to minimise disputes and prevent leaseholders falling into legal traps.
Other possibilities are removing the requirement that leaseholders must have owned the lease of their house for two years before they can buy the leasehold and scrapping a leaseholder’s contribution to their landlord’s legal costs, and if not, capping the contribution at a fixed maximum amount.
In September 2018 the Law Commission publish its consultation paper on enfranchisement. This will propose a new, single regime for leasehold enfranchisement designed to benefit leaseholders of houses and flats. The proposal will then be subject to full public consultation.
The Law Commission also intends to publish consultation papers on commonhold and Right to Manage before the end of the year.
‘This Government is committed to tackling the unfair leasehold practises that exploit home owners. We have already announced radical new measures to ban leaseholds for almost all new build houses and reduced rents to a peppercorn. I welcome these proposals by the Law Commission that will help home owners get a fair deal,’ said James Brokenshire, Secretary of State for Housing.
The proposals offer some clarity, according to Christopher Grady, residential development specialist at Weightmans LLP. ‘If enacted, its proposals would improve the current enfranchisement system, making the process of purchasing a freehold, or obtaining an extended lease much clearer and more affordable for consumers,’ he said.
‘The commission has recommended a number of ways this could be done in practice, but whatever option the government chooses, the need for customers to undergo a potentially lengthy, costly tribunal, or negotiation process, should be removed, a development that should be welcomed,’ he pointed out.
‘In my experience volume house builders have been prioritising freehold sales and moving away from the leasehold model for some time now, in response to consumer concerns. My clients have been working hard to make leasehold terms more customer centric for sales still in the pipeline, such as extending the length of leasehold agreements, ensuring ground rent reviews are index linked, or not charging any ground rent at all,’ he added.