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
More leaseholders to own their own buildings under government proposals
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:
https://www.leaseholdknowledge.com/wp-content/uploads/2022/02/LKP-Response-Feb-17th-Final-Vers.pdf
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”.
Freehold freedoms to favour owners rather than ‘dukes and developers’
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:
https://www.leaseholdknowledge.com/wp-content/uploads/2022/02/LKP-Response-Feb-17th-Final-Vers.pdf
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.”
The great leasehold hoax: When you buy a house, but it’s not actually yours
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.
Related posts:
MPs tell government consultation: End leasehold houses. Scrap new ground rents. Ignore pleas for self-regulation. Ban Help To Buy on rip-off leaseholds
Time for leaseholders in mixed-use sites to take control
Leaseholders and the sector react to Law Commission reforms to commonhold and right to manage
Lawyers to Communities Select Committee: Stop ‘sticking plaster reforms’. End ‘draconian’ forfeiture. £10 ground rents a ‘mistake’. Make legal costs fair to leaseholders. Commonhold failed because developers make money out of leasehold …
Justin Madders delays Leasehold Reform Bill and calls on the Government to provide justice for leaseholders
The Building Safety Bill: what’s next and what can leaseholders do?
Great news and articles and definitely a move in the right direction. However didn’t see any mention of the structural dependency rules being abolished which was mentioned in the original Law commission report?
This has caused huge problems for our residents association. 376 apartments over 2 blocks. Freehold owned management agent who goes to great legal lengths to keep us down. Even employed a legal team and barrister to try and stop us becoming recognised at FtT. Now also employing same tactics at our service tribunal ( JB Leitch and barrister Simon Allison in their corner. You would not believe our Scott schedule and the items they are trying to charge us for. They have added 100% of their management costs to the service charges. This includes all their office staff, office costs staff parking and every penny of their running costs and then add on an additional 12% management fee on top of it all.
I’m willing to share our case details of LKP are interested.
It seems as though your freeholder owned managing agent is doing what freeholder managing agent do best. It is the nature of the beast. This is why managing agents must be regulated and those regulation must include criminal sanctions. I am disappointed that there has been no mention of Lord Bests report of 2019 which recommended an Independent regulator to monitor MA’s. The regulation of MA’s requires no repeal of ancient laws and could be implemented at the stroke of a pen.
I hope LKP won’t mind if I plug my ‘ REGULATE MANAGING AGENTS-NOW’ petition which is on FB / Twitter. I am 900 signatures short of 2000. I will then contact the media and write to Mr Gove stating the absolute urgency of the need to regulate MA industry.
Hi Mark, we are very concerned by the strict approach to the vertical division in the 1993 Act and urge that it be scrapped, in line with one of the Law Commission’s final recommendations in its enfranchisement report of July 2020.
I hope you have made the case for its abolition in your response to the leasehold reform consultation closing tonight at 11:45pm UK time: https://www.gov.uk/government/consultations/reforming-the-leasehold-and-commonhold-systems-in-england-and-wales
Please send over details of your case study to hscoffin@leaseholdknowledge.com and I’ll see what we can do to give this issue a higher profile. 50% rule will not help many leaseholders on mixed-use estates if they have shared services such as utilities and a plant room with the commercial premises. Property developers are increasingly building mixed-use schemes where the residential is tied to the commercial space by umbilical cord.
One angle that does not get addressed is so called event fees. I understood this money -1% to be paid by the seller on the sale of a property to the estate management company -, was intended to be paid into the service charge fund. But it never appears in the credit columns of the accounts – just disappears into a black hole. The managing agents, when questioned, never have an answer. There is also ambiguity over its application ‘re other ‘events’ and was already dubbed unfair practice by the FTA in 2012 but leaseholders have not been notified nor had their leases amended.
Now that Ground Rents are banned can someone please confirm if this applies to Retirement complexes, as the sales literature from M&S and Churchill seems to say otherwise.
Banned from April next year. Non retirement from August this year.
Whilst it is proposed that participating lessees can make the landlord take a leaseback of the non participators it does not apply the other way round
The landlord should also have the right to take an overriding lease over the non participators
Stephen it is time to read the room. Landlords have made merry with their “ Rights”.
Now is the time for positive discrimination. It is my hope that leasehold will be abolished and freeholders become obsolete therefore their “ rights” will no longer be an issue.
I own an apartment in a mixed use building which is subject to percentaged service charge due to different size apartments. However, upon moving into the building was charged with over £3,000 towards roof repairs at 14% of the total cost. The rental shops below did not contribute as Leaseholder deemed it was not their responsibility.
We are currently undergoing an update fire alarm systems which were installed 5 years ago and approved by Fire Services and Sefton Council at that time. Also long overdue updates to communal areas I am concerned I will be asked to pay 14% towards the costs although I do not have any more communcal space than my neighbours – is this legal?
What about house owners? Mine is a 3 bed semi and I pay ground rent once a year.
I own the house. There is no outstanding mortgage or any other debts.
Can I now simply stop paying?
Reply to Ken Brown..
I’m no expert but I am in the same situation as yourself, no.. you can’t stop paying ground rent and it could be risky to do so; we are all waiting for the 2nd part of Leasehold Reform which I understand may include current long term leaseholders, the recent Reform is only applicable to new builds and as far as I am aware will not be law until later this year?
I, like many other current leaseholders am waiting for the 2nd part of the Reform Bill to be addressed but as I understand it there is no guarantee that it will be passed and there is ample time for the lobbying louts to scupper the whole thing with a few well placed ‘donations’ ! which in my opinion will be a clear sign to many home-occupiers (I can’t say owners because all they own is a lease)… a clear sign to vote for any other political party that WILL sort out the unfair obscene blackmail that leasehold is.
I must however say that in Michael Gove we seem to have someone who is pushing the right buttons for leaseholders, lets hope that his new Minister will also be on our side.
As I say, I am no expert and these are my own opinions, it would be nice if someone from LKP could verify what I have written.
rgds…Louie.
Hello Louie.
Thanks for your reply. It confirms what I suspected, that home occupiers are not currently being considered.
Hopefully you are right about Michael Gove but “ put not your faith in politicians” has always been my view.
I am also signed up to the Leasehold Advisory Service web site so I’m hoping that they will come up with advice for people such as us.
Regards, Ken Brown.
Great article thanks Harry, and thanks LKP for all your efforts. The book extract from 1885 shows how history is repeating itself, in that modern day right wingers are accusing their own Tory party of being Socialist. Let us hope that justice and common sense prevail.
My lease requires my lease owner (Elmdon Real Estate) to provide building insurance and provides that I must reimburse their costs including any commission payments made to a third party broker.
This clause allows my lease owner to charge the most astronomical premium it can negotiate with a insurer, with heavy and ridiculous excess payments designed to discourage and therefore prevent any subsequent claims. Any commission payment agreed must be paid, and in the case of my lease holder, without naming the broker or providing proof of initial payment.
Although I am the final customer making payment in this process I have no rights in negotiating any costs or agreeing terms and conditions but must pay whatever my lease owner directs. This is contrary to any similar transaction in any other form of UK business and is quite simply a legal licence to loot. The rules on this must surely be changed in the next round of leasehold improvements.
What about existing leases? I have under 50 years remaining on my leasehold flat. I cant extend my lease as premium is vey very high because I wan not informed when I purchased the flat 20 years ago it would be so much costly to extend the lease. Also managing company increases service charges every now and then as they please. How on earth I keep them paying money, I am an owner of the flat just on the paper but in reality its like I have made a huge mistake buying leasehold flat. I hope government soon cancels marriage value terms to extend the lease of under 80 years and also new law is very much required for managing agent who never explains what the new charges are for. It should be a criminal offence if managing agents are found to earn commission from insurance companies and contractors. There is very little help available for leaseholders and also leaseholders are not made aware about many issues when they are purchasing residential properties on lease. I cant even remortgage my flat due to low lease.
Paid a fortune to solicitors and e and j estates to change lease to rpi from doubling every ten years due to not being able to remortgage as no one interested
Wholeheartedly support theses new regulations
Is it really correct that the phase two of leasehold reform will address existing HOUSE leaseholders? And in what way?
Hi David,
As I said previously, I am no expert but have read the relevant parts of the Leasehold and Commonhold consultation…nb. the notes below are for house leaseholders, flats and commonhold are a different thing, although there is a move to have rules for flats considered as those for houses.
YES ,,! the second part of the Leasehold Reform bill will indeed address existing house leaseholders, however it was a ‘consultation’ with recomendations from eminent legal experts most notably Prf Nick Hopkins but has yet to go through Parliament.
The main thing about the recomendations is that it would make buying the freehold or extending a lease easier and cheaper, it would stop the ridiculous rule that in any dispute the leaseholder pays the freeholders court costs and would stop any onerous terms from entering into the freehold contract which would benefit the freeholder, as I understand it the recomendations will mean that any ground rents will be peppercorned and there will be a streamlining of the process of enfranchisement, most likely an online standard form.
The reccomendations only apply to making the process of enfranchisement easier and fairer, it does not address cases of terms of lease apart from abolishing forfeiture of lease due to non payment of ground rent and it will remove obstacles that would impede the purchase of the freehold by the leaseholder.
Again this is my interpretation of it and to be honest there is quite a lot to go through if you have got an afternoon to spare! The only thing I don’t know is when this will start to go through the Parliamentary process, and then it would be next year I should imagine before any of this becomes law. And thats if politicians will keep their noses out of the trough and not let those who don’t want the gravy train to be de-railed have their way.
Louie
Thanks for that Louie, you are a better man than I having read the legal stuff. “Easier and fairer” – and supposedly cheaper I think. One of the proposals I think is to allow house leaseholders to extend their lease to 990 years (with no ground rent). There are immediate issues with such a proposal, 1/ The very proposal effectively legitimises leasehold, 2/ Removing ground rent means freeholders will find other revenue streams, most notably permission fees.
My overwhelming contempt for government, the legal fraternity, and the entire freehold industry remains in place. The powers that be continue their fiddling when an axe is required.
Bought a house from Bellway 5 years ago. Was never told that it was Leasehold which would double every 10 years by Sales Office or Solicitor. Just asked to sign a lot of forms quickly on completion. Trapped!!!!
I have read this email and I think it is GREAT!! what U R doing and have done. My freehold is 12 pounds a year and I have a long lease but I still do not feel like I actually own my property.
Sorry, I was unable to fill out your form ” and have my say” as I was unable to find the link
Hi Lucia, there’s still time! You can respond to the government consultation on leasehold reform up until tonight at 11:45pm UK time.
Please respond here: https://www.gov.uk/government/consultations/reforming-the-leasehold-and-commonhold-systems-in-england-and-wales
Freeholders and their professional acolytes are fighting hard to keep the status quo. Every leaseholder response counts and is read by the officials.