Notwithstanding the challenges of Brexit, the Government is pushing forward with its proposals for reforms in the residential leasehold market with the issue of two Consultations this Autumn.
Reforms to the leasehold system in England
The Government first announced its proposals for reform in the Housing White Paper in February 2017 as a consequence of practices that had developed in the long leasehold market. It consulted on its proposals in July 2017, announced its proposals for reform in December 2017 and its latest Consultation is dealing with implementation of the reforms in England. It is relatively short at 42 pages and closes on 26 November 2018.
Views are sought on the implementation of the following:
- a ban on the use of leasehold for new build houses
If a new residential long lease is incorrectly granted on a house, the homeowner will be able to cancel the lease and have the freehold title transferred to them. The ban will be subject to exemptions for shared ownership leases and community-led housing. There is an issue for any leasehold sites acquired on or after 22 December 2017 as once the ban is in force, the grant of new long leases of houses out of those sites is prohibited.
- cap of £10 on future ground rents in long leases
It is proposed that any provision in a lease that permits a ground rent greater than £10 per annum will be void. The rent must be demanded in advance by notice at least 28 days before it is due to be paid. There will be exemptions for shared ownership leases, community-led housing and retirement properties.
There will not be a transitional period for the change and the cap will come into force three months after commencement of the new Act. The Government states in the Consultation that any legislation to deal with this reform would be unlikely to be passed until mid-2020 at the earliest.
- measures to ensure that maintenance charges for freeholders are fairer and more transparent
The Government is proposing to provide freeholders with a regime based on the relevant provisions of the Landlord and Tenant Act 1985. The maintenance charges must be reasonably incurred and the services provided must be of a reasonable standard. There will be consultation requirements, an opportunity to challenge the reasonableness of charges at the First-tier Tribunal and possibly a right to apply for a replacement manager.
- the imposition of fixed time frames and maximum fees for the provision of leasehold information on the sale of a leasehold property
Transactions involving leaseholds can take weeks longer than those involving freeholds so the Government is imposing fixed time scales and maximum fees for the provision of leasehold information.
Reforms to leasehold enfranchisement in England & Wales
This Law Commission Consultation paper is 546 pages and contains comprehensive provisional proposals to reform the law relating to leasehold enfranchisement in England and Wales. The Law Commission’s proposals are intended to:
- improve and enhance the rights of leaseholders to buy their freehold or extend their lease, making the enfranchisement process easier, quicker and cheaper
- introduce a simplified unified enfranchisement procedure for houses and flats
- reform the valuation methodology for enfranchisement.
The Consultation closes on 7 January 2019. Given the magnitude of the proposals, the Law Commission has also made available a leaseholder survey, the purpose of which is to collect information on the range of different leases held by current and former leaseholders in England and Wales, and on leaseholders’ experiences of the current enfranchisement process. The Law Commission states that this information will provide part of the evidence base that it will use to produce its final recommendations for reforming the law.
These two Consultations deal with major changes to residential leasehold law and it is vital for parties affected by the changes to respond and have an opportunity to shape the proposals.
Looking to the future, might these reforms herald the widespread use of commonhold by housebuilders?
Implementing reforms to the leasehold system in England – responses required by 26 November 2018
Leasehold home ownership: buying your freehold or extending your lease – responses required by 7 January 2019.
This blog post was written by Sally Newton, Senior Associate and PSL in Gateley Plc’s Real Estate team.