By Harry Scoffin
With the Leasehold Reform (Ground Rent) Bill now law, LKP publishes its response to the government’s consultation on policies that promise to dramatically improve the position of existing leaseholders.
Changes have to follow now that the leasehold sector is deprived of a future. Ground rents are the only legitimate income stream in leasehold: with them banned for future developments, the path to commonhold is clear.
The proposed leasehold changes include …
- … a massive liberalisation of the qualifying criteria for the right to manage and collective enfranchisement schemes so that many more leaseholders can take easy control of their service provider, bills and buildings
- … a tried and tested mechanism called mandatory leaseback to slash the costs of freehold purchase on mixed-use developments which will turn a theoretical right into reality for many more leaseholders with expensive business premises on site
- … toughening up the right to manage regime to ensure freeholders cannot hoard RTM company votes to undermine leaseholder self-rule
- … and the tweaking of a new model of shared ownership to ensure the affordable housing scheme can successfully operate within the fairer commonhold setup and protect shared owners from major works bills for the first ten years after purchase
Government plans to create a fairer system for leaseholders in England and Wales open for consultation today Proposals could make it cheaper and easier for leaseholders to buy the freeholds of their homes Consultation follows reset of government approach to building safety, and forms part of the biggest reforms to property law in a generation Leaseholders could find it easier and cheaper to buy the freehold of their building under radical government proposals to create a fairer housing system..
LKP’s consultation response can be read by clicking the below:
Turning the 25% rule into a 50% limit on non-residential premises for both right to manage and collective enfranchisement is a totemic policy for leaseholders, and a change that has been consistently argued for by this charity and its trustees past and present, including the late Louie Burns.
Is Law Commission wobbly over 25% commercial exclusion to collective enfranchisement? (Let’s hope so) – Leasehold Knowledge Partnership
If you have strong views – we have! – over the 25% commercial exclusion to collective enfranchisement on mixed use sites, the Law Commission wants to hear from you. This point could not have been more forcibly made by Law Commissioner Nicholas Hopkins at the LKP-organised meeting last Saturday at the Law Society, in central …
It would bring the rules on right to manage and collective enfranchisement into line with those that already govern the Right of First Refusal. This gives flat leaseholders ‘first dibs’ on the freehold if the developer wants to sell up, and Compulsory Acquisition by Tenants of their Landlord’s Interest, which applies to delinquent sites where leaseholders have proved fault against the freeholder in tribunal and only activates after two years of having a section 24 manager in place (cf Charter Quay, where this was exercised).
Both policies were brought in by the Thatcher government and included residential leaseholders on sites where the internal floor area devoted to non-residential premises does not exceed 50 per cent.
As reported by LKP last month, the 50% principle to ensure developments are ‘predominantly residential’ in order to qualify for an extension of leaseholder rights did not apply to the collective enfranchisement scheme introduced by John Major’s government owing to lobbying by freeholders and the opposition of landlords and other property interests in the House of Lords.
This nobbling of the 50% principle was recently confirmed in a ground rents debate by the housing minister then responsible for getting the legislation through Parliament, Lord Young, formerly Sir George Young.
House leaseholders secured the ability to ‘enfranchise’ in 1967.
Tory radical Lord Randolph Churchill, Winston’s father, tried to free leaseholders with a Leasehold Enfranchisement Bill in 1884 – but it fell due to the opposition of prime minister Lord Salisbury.
The idea that leaseholders with a majority occupation of the acreage of a building should be allowed to fire landlord and their agents, gain control of service charges and gain ownership of the site was the subject of an article in The Times last month, which reported that housing secretary Michael Gove “has privately said he is happy to be ‘taking on dukes and developers’ who have made fortunes out of the system”.
Hundreds of thousands of homeowners will be given the power to buy the freehold to their property under plans to phase out the majority of “feudal” leaseholds in England. Ministers are preparing to scrap rules that bar flat owners from buying the freehold to their property if a small part of their building is given over to commercial use, such as shops.
The report said:
“Hundreds of thousands of homeowners will be given the power to buy the freehold to their property under plans to phase out the majority of ‘feudal’ leaseholds in England.
“Ministers are preparing to scrap rules that bar flat owners from buying the freehold to their property if a small part of their building is given over to commercial use, such as shops.
“The government will also make it much easier for leaseholders in flats to take over their buildings and bring them into common ownership to avoid extortionate management fees and ground rents.
‘There are people who say to him [Michael Gove] that you shouldn’t pick a fight with the developers as the government needs them to fulfil its house-building targets,’ one source said. ‘His view is ‘bring it on’.’
“Despite reforms critics say the system is still inherently unfair to homeowners who do not technically own properties but have the right to live in them. Criticism has intensified in the wake of the cladding scandal.
“Many homeowners have faced crippling bills and properties they cannot sell after buying leasehold flats that the freeholders refuse to rectify.
“Gove is understood to want to go further and phase out the leasehold system, which ministers say has created a ‘nightmare of crippling ground rents, extra fees and onerous conditions’.”
The report also suggests that phase two of the leasehold and commonhold reform agenda is set to be announced in a new bill in the Queen’s Speech, which tallies with LKP’s impression.
LKP urges all leaseholders to read its submission attached below and respond to the consultation, which went live last month, has less than two weeks to run and closes at 11:45pm on February 22.
LKP’s consultation response can be read by clicking the below:
Although the focus of this consultation may seem highly technical and narrow in scope, all leaseholders will benefit, even if indirectly, from these reforms getting onto the statute books as part of a second leasehold reform bill.
If the changes become law, they will complement the ground rent ban on future leases that received the Queen’s blessing last night, pave the way for a reformed commonhold to take hold on new build schemes, and add weight to calls for compulsory transformation of all long residential leases into commonhold, which will become deafening after the much anticipated second leasehold reform bill (containing a “new, full-throated version of commonhold”, in Lord Greenhalgh’s lingo) enters law in the next session of parliament and commonhold takes off.
There are fears that freeholders and their professional acolytes including lawyers, managing agents and surveyors will be swapping notes and bombarding the Department for Levelling Up, Housing and Communities with forceful and well-written submissions urging ministers and officials not to go too far lest investment in the housing market dries up, developers stop building mixed-use developments altogether because of the implications of resident control or the government faces a judicial review over the plans they see as impinging on property rights.
Leaseholders managed to persuade the Law Commission to rethink its position towards keeping the arbitrary and arcane 25% rule on collective enfranchisement and commonhold conversion because of their responses to the body’s consultation papers.
Indeed, the Law Commission noted in its final recommendations in July 2020 that:
“We did acknowledge in the Consultation Paper that our provisional proposal may lead to dissatisfaction in particular cases.
“However, through consultation responses and comments made at consultation events, we have heard of significantly higher levels of dissatisfaction than we had previously been aware. Numerous consultees and stakeholders told us how they have been prevented from exercising collective enfranchisement rights because their building falls slightly above the 25% non-residential limit. It has become apparent that the 25% limit provides a significant bar to the ability of leaseholders to undertake a collective freehold acquisition, and that the arbitrary nature of the limit makes the bar to enfranchisement a source of considerable frustration for many leaseholders.
“Despite the fact that a majority of consultees supported our provisional proposal to retain the 25% limit, we have found the arguments advanced by a significant minority to be compelling. Fundamentally, the purpose of the limit is to confine enfranchisement to predominantly residential blocks – and we have been persuaded that a 25% limit on non-residential use does not achieve that purpose. On this basis, we think that the 25% non-residential limit should be increased.
“… we think that increasing the non-residential percentage limit to 50% is appropriate. This change would put as objective a test as is possible onto the subjective question of which buildings are residential in nature, based on the predominant type of ownership in a building (by floorspace). In all but the most complex cases, ascertaining whether this limit is met will not require significant expertise and cost.”
Leaseholders now have the opportunity to tell Michael Gove and his ministers to hold firm and enact this policy and all the others that LKP is calling for as part of this consultation exercise.
If they don’t, they may be sorely disappointed when watered-down proposals are presented in the second leasehold reform bill and they are left to wait another 10 to 20 years for more substantial changes.
How the Independent explained the 25% rule in 2019:
“The emergence of mixed-use schemes, where squeezed local authority and prospective buyer are enticed by the prospect of building a new school, doctors’ surgery, bars, restaurants and shops under newbuild flats, demonstrates the way leasehold is taking over. Where buildings are over 25 per cent non-residential, developers have artfully curtailed residential rights to almost nothing.
“An investor who gains the freehold of a mixed-use building can use his total control of the service charges from the residential floors to subsidise his commercial operations. Of course he’s not supposed to do this, but the ease with which service charge accounts can be delayed and fudged, and residential spending conflated with commercial makes it a temptation few will resist. If you don’t need to pick up the tab, why would you?
“The freehold landlord is safe in the knowledge that while leaseholders theoretically hold the power to win disputes at the property tribunal, the chances of them finding the time and resources to cobble a case together against him are slim. People have lives, families, jobs. How many can dedicate the months, if not years, a legal battle can take?
“And why should a flat dweller have to go to court to force his landlord to clean his windows or repair his lifts or employ decent door staff for a reasonable cost? Especially when that landlord can bill him through the service charge for his own legal costs. Yes, go to the tribunal and if you lose you cold pay both sides’ legal costs. Think of that playground game where the bully forces his victim to smack himself round his own face and you’ve pretty much got the leaseholder’s plight.”
News Long Reads People lucky enough to leave the rental market could find themselves in the leasehold ‘property trap’. Angry at living under feudal rules, this class of mortgaged renters want the homes they paid for, says Harry Scoffin Friday 25 January 2019 10:29 The sun is out in London’s Docklands.