Leasehold Reform Contents

Introduction

1.Campaigns for reform of the leasehold sector are not new, but the issue has regained prominence in recent years with the revelation that some developers had imposed what are perceived to be onerous—particularly, 10- and 15-year doubling—ground rent terms in the leases of newbuild flats and houses, leaving many leaseholders unable to sell their properties or re-mortgage. Concerns were also raised around the growth in the numbers of leasehold houses, particularly in the North West of England. Campaigners have argued that onerous ground rents were symbolic of wider problems in the sector, including high service charges and one-off bills, unfair permission charges, alleged mis-selling of leasehold properties by developers, imbalanced dispute mechanisms, inadequate advice services, and unreasonable costs to enfranchise or extend leases. At the very start of our inquiry into Leasehold Reform, we invited 50 leaseholders to meet us in Parliament, to talk about the issues1 in the sector they were most concerned about and recommend what we should pursue in our public evidence sessions. We listened carefully to their concerns and, at the end of the session, we asked what they wanted us to recommend in our final report. And they responded, with near unanimity: “abolish leasehold”. It was a clear message to us that fundamental reform of the sector was needed.

2.The Government has acknowledged that the leasehold system is not working in consumers’ best interests and needs to be reformed.2 Following the publication of the Government’s response to its consultation, Tackling unfair practices in the leasehold market, in December 2017, the former Secretary of State for Housing, Communities and Local Government, Rt Hon. Savid Javid MP, condemned the “practically feudal practices” in the sector and promised to crack down on them.3 In October 2018, the Government launched a further consultation proposing to cap ground rents on new-build leasehold properties4 at £10 per year, require the majority of new-build houses be sold as freehold, and make it easier for tenants’ associations to be formally recognised by freeholders.5

3.The Government has also asked the Law Commission to look at leasehold legislation as part of its Thirteenth Programme of Law Reform. Since September 2018, the Law Commission has published consultations into three ‘workstreams’: leasehold enfranchisement, right to manage, and commonhold reform,6 and has said that it might also undertake a project examining the way in which unfair terms law applies to long leases, although no commencement date has yet been set.7

4.Our inquiry did not seek to replicate the Law Commission’s important programme of work, but instead to build on that and find out whether the Government’s proposed reforms went far enough. We were particularly keen to explore the growing concerns relating to houses being sold on a leasehold basis, most notably in relation to ground rents, permission fees, estate management charges and enfranchisement. However, as our inquiry progressed, it became apparent that many of these issues were also faced by leaseholders in flats, and our recommendations reflect this. As we conclude later in this report, we do not believe that leasehold is an appropriate tenure for houses. In our call for written evidence, we asked for views on the adequacy of the Government’s programme of work on residential leasehold reform, and its application to existing leaseholders in both houses and flats. We wanted to know what further support should be provided to existing leaseholders, especially those with more onerous lease terms, and what the implications were of providing such support.

5.This Committee has never undertaken an inquiry that has had such an overwhelming response from individual members of the public. We received over 700 written submissions, the vast majority of which were from leaseholders who wanted to tell us about their personal experiences of living in a leasehold property. We took public evidence from a range of stakeholders, including leaseholder representatives, Members of Parliament, developers, freeholders, managing agents, the social housing sector, the Leasehold Advisory Service, solicitors’ representatives, legal experts, the Law Commission and the Government.

6.Our report has five chapters. The first considers whether leasehold tenure has a long-term future alongside the principal alternative model of ownership, commonhold. In particular, it considers arguments made by freeholders that they provide a unique and valuable service that would be lost through the commonhold model. The second chapter explores the suggestion by some leaseholders that their homes were ‘mis-sold’ to them, noting failures to highlight onerous terms in leases, promises that leases could be purchased at a specific price at a later date which proved to be false, and that some leasehold homes were sold as being described as ‘basically freehold’. Our third chapter looks at the issue of onerous charges in leases, including high and escalating ground rents and permission fees. We address the Government’s proposals for new-build properties and propose further action for existing leases. In the fourth chapter, we consider the evidence we received concerning service charges and one-off bills, and the adequacy of the mechanisms leaseholders have to dispute those charges. The final chapter explores the Law Commission’s work concerning enfranchisement and makes further recommendations, including with regard to support for lower-income leaseholders who may not be able to afford to enfranchise or extend their leases.

7.We wish to express our sincere thanks to those who attended our leaseholder roundtable meeting in Parliament, and to everyone who made written submissions. These were an invaluable source of information, which guided the questions we asked witnesses in public evidence sessions and helped us to agree our conclusions and recommendations. We have referred extensively to these submissions throughout our report. We are also grateful to those who provided oral evidence, and to our Specialist Adviser, Professor Christine Whitehead.


1 See Annex: Summary of discussions at an informal roundtable event with leaseholders

2 Ministry of Housing, Communities and Local Government (LHR0548), para 7

3 Tackling unfair practices in the leasehold market: Summary of consultation responses and Government response, Department for Communities and Local Government, December 2017, and Written Ministerial Statement, HCWS384, 21 December 2017

4 Strictly, the cap (and the requirement, next referred to in the text, to sell houses freehold) applies to newly-created residential long leases. In practice, these will usually be new-build, though there may be instances where new long leases are granted over existing homes. For simplicity, we shall refer to these newly-created leases as “new-build”.

5 Communities Secretary signals end to unfair leasehold practices, press notice, Ministry of Housing, Communities and Local Government, 14 October 2018

7 Law Commission (LHR0672), para 1.2




Published: 19 March 2019