The Government consultation on leasehold reform drops a hint that the Government may intervene to help existing leaseholders – triggering speculation that it could lead to a mis-selling compensation scenario on a similar scale to that of the payment protection insurance scandal (PPI).
One house builder, Taylor Wimpey, has reportedly already set aside £130m to cover leasehold disputes arising from people who bought its homes between 2007 and 2011, and who now face doubling ground rents.
The consultation, released yesterday, seeks views on how to improve the situation for existing leaseholders.
It says: “The Government recognises the challenges faced by existing leaseholders with ‘onerous’ ground rents.
“We are very keen to hear views on what steps could be taken to improve the situation of these leaseholders, which could include steps to tackle unreasonable and onerous rises in the future and strengthen the rights of consumer redress from unfair trading practices.”
The reference to help for current leaseholders comes after Sir Peter Bottomley, an MP and co-chair of the All-Party Parliamentary Group on leasehold and commonhold reform, referred in Parliament back in February to the case of a couple who had been quoted a price of under £4,000 to buy their freehold from the developer Bellway at the time they purchased their home, only to find that a year later, once the freehold had been sold on to an investment company, the price had gone up to £12,000.
Sir Peter said: “What kind of society are we where people who are new to property law should find that the asking price has more than doubled in a year for a home that they live in?”
Sir Peter went on to compare the unfolding scandal to that of the mis-selling of PPI which has cost the banks many billions of pounds in compensation.
He said: “When we first started hearing about PPI, we thought ‘is there anything in this?’ It turns out of course there was a lot in it.
“The same thing applies I think in this leasehold field as well.”
Buying agent Henry Pryor told EYE yesterday that the scale of the mis-selling could resemble the billions paid out under the PPI redress scheme by banks, but he believes it is conveyancers rather than house builders and developers who will ultimately be held responsible.
“I can’t imagine that all these leaseholders acquired their interests naively despite the professional advice they got from conveyancers.
“I expect the courts will decide they were incorrectly assigned and the claims will come as result against the conveyancers.
“I don’t think the house builders have done anything admirable but they haven’t done anything wrong.
“People bought these properties with the benefit of whatever advice they took. It is the conveyancers that will feel the heat.”
He said the Government should put a mechanism in place for leaseholders to bring claims against their legal advisers.
Sebastian O’Kelly of campaigners the Leasehold Knowledge Partnership told EYE that developers should also be held accountable.
He said he hoped the scrutiny of the consultation would shine a light on how current leaseholders are suffering.
He backed calls by Labour MP Justin Madders for developers to be called before the Department for Communities and Local Government select committee to explain how many leaseholders are affected.
He said: “Homes are blighted by onerous terms and people can’t get mortgages or move.
“There are various avenues being explored and legal action against developers who misled leaseholders or solicitors who advised them.”
EYE also spoke to agents yesterday who said leasehold properties have become harder to sell, underlining the need for support.
Rob Pitick, director at Fairview Estates, said: “Leasehold properties have become harder to sell because freehold property – where the buyer is in charge of their own destiny, so to speak – is increasingly becoming the preference.
“Concerns over leasehold property include possible confusion over the length of lease, the possibility of getting a mortgage, and buyers are also put off by charges, such as ground rent.”
But Mark Hayward, chief executive of NAEA Propertymark, wasn’t sure that the document goes far enough for existing leaseholders.
He said: “We’re very pleased the Government has brought some clarity to this unsatisfactory situation.
“It draws attention to the onerous consequences of buying a property with escalating ground rent. However, while this consultation looks at new homes, it doesn’t seem that it will do anything to help those who already own properties of this type.”
Mark Scott, a specialist in residential property at national law firm Blake Morgan, agreed, claiming the consultation left a question mark over existing home owners.
He said: “One possibility could be extending the lease as permitted by the current legislation which has the effect of reducing the ground rent to zero.
“However, this process can be lengthy and expensive and includes the need to pay the landlord a sum for loss of future rent.
“Changes could be made to existing legislation to remove the loss of rent element from the calculation, considerably reducing the cost to extend the lease.
“This would sit nicely alongside the Government’s thinking that ground rents are unfair in the first place.
“Alternatively, we already have in place a simple conveyancing process that allows existing leases to be varied by agreement between a landlord and tenant, thus allowing very simply changes to the lease terms such as removing high ground rents or the mechanism to increase this in the future.
“If a landlord chooses this method, then an incentive which may be appealing is to allow the landlord to retain a small fixed rent and thus still retaining some value in their investment.”
On ground rents, the Government said it was “minded” to introduce measures limiting charges to start and remain at “peppercorn”.
The consultation also hints at action on developers selling on ground rents.
It says: “Where developers sell on the freehold interest to a third party after a leaseholder has moved into a new-build house, consumers can find that they are faced with significant legal and surveyor costs where they want to purchase the freehold. Such transfers can take place without the leaseholder being informed.
“The Government does not think this is in consumers’ best interests.
“Developers and landowners argue that restricting their ability to sell on freehold interests to third-party investors will result in increased house prices, in order to compensate developers for selling the freehold interest to the purchaser, and will reduce choice. The Government is not convinced of these arguments.”
Beth Rudolf, director of delivery at The Conveyancing Association, said: “We look forward to hearing more details on these proposals and hope they will deal with the single biggest loophole, the Commonhold and Leasehold Reform Act, which currently excludes leasehold home owners from having any protection from unreasonable fees and unreasonable delays when buying, selling or simply improving their property.
“This loophole means that one particular landlord openly continues to charge £300 for a Deed of Covenant when the First Tier Tribunal issued a judgement against them three years ago saying these should only cost £80.”
All responses to the paper should be submitted no later than midnight on September 19.
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