The Communities Select Committee, under Clive Betts MP, ensured that this well hidden sector of the housing market came out from under its stone
The Leasehold Knowledge Partnership warmly endorses the Communities Select Committee report published today.
We have campaigned since January 2012 to see a parliamentary report turn such a clear-eye to this murky and exploitative corner of the housing market. The report is a huge vindication of our efforts.
The report amounts to a demolition of the leasehold system.
It urges government to replace it with commonhold, which exists in virtually every jurisdiction outside England and Wales.
It urges the absurd description of “home ownership” to be dropped when applied to leasehold tenancies, with them being marketed as “lease – rental” instead. That is an excellent piece of advice.
It wants the Law Commission to examine the whole of leasehold law – which the Law Commission itself says it would prefer to do – rather than the incomplete reforms currently under consideration.
The report is devastating about how developers have taken their customers – and us, the wider taxpayers – for a ride by squirrelling in an investment asset in the homes of ordinary families.
Victory for 100,000 trapped in unsellable homes by leasehold deals
New report accuses housing firms of exploiting buyers with leasehold contracts These contracts impose crippling ground rents and ‘excessive’ fees on buyers Ministers have already banned the sale of new houses with these toxic deals But MPs say there is no excuse for not helping 100,000 victims already affected The law must be changed to help families stuck in toxic leasehold deals escape their unsellable homes, MPs are demanding tomorrow.
Scrap ‘mis-sold’ leaseholds and cap ground rents, MPs demand
The report also called for ground rents on new leases to be set at zero, and for a Help to Buy-style scheme to help leaseholders buy their freehold. Katie Kendrick, of the National Leasehold Campaign (NLC), who lobby for property reform, said the report had been “massively welcomed by all leaseholders”.
It is clear that MPs think that developer-recommended solicitors have been little more than stooges: dumping their supposed clients in onerous lease terms. Some of these – the doubling ground rents – have made these properties unsellable.
The committee is absolutely right to call for a ban on developers offering discounts and other financial incentives to persuade a customer to use a particular solicitor.
It is good that the committee sees any ground rent as onerous if it materially affects a leaseholder’s ability to sell their property or obtain a mortgage.
The great hope for leaseholders trapped in existing leases is that the committee feels that it is legally possible for the Government to introduce legislation to remove onerous ground rents in existing leases.
However, it passes this task to the Competition and Markets Authority to investigate mis-selling, and make recommendations for appropriate compensation.
Unsellable and unmortgageable – how builders carved up the housing market
The way leasehold properties were sold in the past left developers coining it in and unsuspecting buyers left with homes they struggle to sell or even get a new mortgage on – with potentially millions now in line for compensation
The Government should require the use of a standardised key features document, to be provided at the start of the sales process by a developer or estate agent, and which should very clearly outline the tenure of a property, the length of any lease, any ground rent or permission fees, and—where appropriate—a price at which the developer is willing to sell the freehold within six months.
The report makes devastating criticisms of the government’s monopoly quango the Leasehold Advisory Service, which should have leaseholder representatives on its board. It failed to alert government to the ground rent and leasehold houses scandal.
The full Communities Select Committee report is here:
1CommunitiesSelectCommitteeReport
Clive Betts MP press release comments.
Mis-selling allegations in leasehold sector should be investigated, say MPs
The property leasehold system has left people trapped in unsellable and unmortgageable homes in the worst cases and wide-ranging reforms are needed, according to a committee of MPs. Too often, leaseholders – particularly in new-build properties – have been treated as a source of steady profit and the balance of power is weighted too heavily against them, the Housing, Communities and Local Government Committee (HCLG) said.
Leasehold in England and Wales is last redoubt of a colonial relic
Property system was spread throughout British empire but has since been almost completely scrapped in the former colonies
Related posts:
Select Committee Leasehold reform inquiry launches 10,500 leaseholders demand select committee hauls in housebuilders over rip-off ground rents 
Can the Leasehold Advisory Service monopoly survive devastating questioning by Select Committee? 
Communities Select Committee lifts the lid on the residential freehold racket 
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 …
The Housing, Communities and Local Government Committee report into leasehold reform is a damning indictment of the leasehold scandal that has turned the dream of so many homeowners into a living nightmare. We hope that Government will act swiftly on the many recommendations the Committee have put forward, particularly an investigation into mis-selling by the Competition and Markets Authority (CMA) and the many legislative changes recommended to protect consumers.
We at the National Leasehold Campaign are hugely proud of the significant contribution that we have made to highlight the multitude of leasehold abuses and mobilise leaseholders to work together to raise awareness and bring about much needed reform. The National Leasehold Campaign will continue to campaign for the abolition of leasehold in England and Wales and we will be watching the Government’s response to this independent committee’s report closely to ensure that this scandal is resolved and the millions trapped by these feudal laws get the fair treatment and redress they deserve.
Well done LKP and NLC for all your hard work and getting us this far! We keep going and won’t stop until justice prevails!
Para 117 appears very confrontational and naive when posted so near to the be Law Societiy warning about upholding contracts
para 117 suggests that if a lessee takes on a lease with a ground rent of £400 per annum doubling day every 33 years then this rent should be reduced to £250 and remain fixed. The lessee knew at outset what the terms we’re. The rent was part of the consideration offered and others have based decisions knowing the rent would be paid at that level
It would be rather akin to arguing if house prices fell that the mortgage debts should be reduced as the mortgage had become onerous . The terms of the mortgage were made clear at outset but that would be ignored as it is inconvient
Certainly some of the doubling clauses aside from the ones that are outright lethal are mere guess as to what inflation might be in the future and should ideally be changed to RPI the idea there should be no compensation over time for the negative effects of inflation is unfair if when the lease was granted some attempt was made to address it – albeit crudely
Rather wild proposals may not actually bring around the changes needed to deal with problem rents
The 10 year doublers could be addressed by giving lessees the right to take action against their professional advisors upto six years after the rent doubled rather than 6 years from the exchange of contracts
That’s a false analysis..
Leaving a property with an escalating ground rent massively impacts the value of the property and can even make it worthless.
Short term that massively impacts the lessee.
It could easily cause problems for the freeholder (if it’s repossessed then no-one pays).
It definitely damages the wider housing market.
An unfair contract is an unfair contract.
Stephen, You are a star! I know of no one else other than you who on a day when such a damming indictment of the abuse of leasehold is published mounts a defence of such a repugnant system(even if your defence is reduced to a paragraph?)
Here maybe a solution.?
If a developer can prove that a property was sold cheaper as a leasehold rather than freehold, than the difference in price can be compensated.
If the freehold has been sold off to an offshore investor the maximum compensation should reflect, the price paid for the freeholds.
So assuming it can be proved that a home cost £3,000 less by being a freehold, notionally the compensation should be £3,000..
If the price paid for the freehold by an offshore investor is £2,000 than that would be the limit of compensation..
If it were to be a £3,000 value freehold was sold for £4,000 the compensation would be £4,000 paid by the leaseholder at £3,000 and the developer at £1,000.
On no account should future revenue streams be included in compensation.
The spivs that have blighted the property industry can take a running jump.
And if they and their lenders loose their money there will be few tears shed.
A lease is set out that the premium will be say £250,000 and a ground rent of £400 per annum rising why should the rent subsequently be knocked down to £250 ?? And if it is to be reduced correct compensation should be paid.
The lessee received legal and valuation advice prior to its purchase. Why should the freeholder probe or be under any obligation to demonstrate that he got correct compensation for the sale and if god forbid he does well it of the deal he should hand it back
The law society makes the point we are a high functioning commercial country and contracts should be upheld if we are to gain the worlds trust
Your proposals are what you might expect in a nanny state where people want all the benefits of rising asset prices but if it turns the other way want to cry to mummy wanting the deal reversed and blame someone other than themselves for any losses
I believe action should be taken on 10 year doublers but to suggest a ground rent if £400 per annum rising in line with the RPI is a burden on a property is ridiculous
A Ford Mondeo RFL is around £400 and easily exceeds 0.1% of its value yet its sales figures are not blighted by such a charge which can be expected to exceed inflation
An enormous amount of hysteria has broken out in ground rents because of a small number of pernicious rents
Those rents can and should be dealt with but not by destroying other rents entered into properly
So how much did they pay for each freehold?
(tumble weed).
There is a huge different between the price paid and future income.
It is not hysteria when banks are refusing to lend on these properties.
NB I drive a Ford Mondeo, it is a great car.
Stephen, you really don’t get it, do you – or don’t want to. When a developer sells a property leasehold, the price (“the premium”) represents the full capital value of the property. (Don’t bother suggesting that leaseholds are sold at a discount – nonsense.) Imposing any ground rent other than a purely nominal one (traditionally a peppercorn) therefore amounts to a charge in excess of the full market value. It is monetising something that in economic terms has no authentic value. It is a complete con.
What I am saying is that a developer offers a deal with a premium and a ground rent (for no service)
If that deal is accepted with the lessee taking legal and professional advice as to value, then in the absence of inducement by solicitors not acting in their clients interest, that deal must stand
The fact the developer gets a better deal by structuring it that way is good luck to them. If a home owner tarts up his flat for 5K and gets £10k more for it and in a year the shoddy workmanship gets exposed there is no redress
My daughter and friends went out for a long Saturday night and blew about £175 each on taxis, meals drinks and clothes for the occasion . With the greatest respect I don’t see why a ground rent of £400 per annum on a flat costing say £300k should be seen as so onerous as to make its sale prospects a problem. It is a problem when a lender behaves irrationally and seek to exert control over the market
If purchasers fail to look at the deal in front of them with their professional advisors why should the deal be unpicked???
Stephen, The leasehold scandal has been caused by greedy, grasping duplicitous “investors” using cheap borrowed money to extort as much income from innocent leaseholders as possible.
They are parasites that contribute nothing, but take everything. Their limitless greed has found them out, and good riddance to them.
Time for them to move on, and find others to fleece.
But this is the consequences of a free market economy.
Mortgages were packaged up and sold to investors greedy (to use your words) for a better return
Investors borrow cheap money to buy stocks and shares in the hope of making a profit , its why stock prices are where they are
A developer selling a home can be expected to get the best possible price he can and provided the terms are set out clearly then I fail to see a problem with a ground rent being offered as part of the package . . He is under no obligation and the same is true of a private individual selling their home to offer any discount of fair play adjustment to the price they seek.
However the management of the freehold going forward of course needs to be in line with legislation and the lease and there appears to be scope for repair to the system particularly in the area of consent fees
Except the consequences undermine the market which benefits no-one.
The impact on just one household is huge.
When a home is unsellable, the occupier cannot move on their career or grow their family.
And it is more than just one, a lot more:
– 12,000 estimated to have doubling ground rents, i.e. a lot of people
– how many on high ground rents not doubling? Got to be a lot more.
– how many on low ground rents with permission fees? A helluva lot more.
– how many are unaware of the permission fees? A ridiculous amount more.
This is the tip of the iceberg.
If you include flats there will be in excess of 100,000 properties with ground rents doubling every 10 or 15 years. Some mortgage lenders won’t lend on either of these doubling terms.
As you say it is a tragedy for individuals whose dream homes become a financial trap. Many of these properties were bought through Help to Buy a scheme encouraged by Government for first time buyers often young buyers who have been stitched up.
Stephen, Me thinks you are planning an orderly retreat, holding the line as long as possible before ultimate defeat.
It may be of interest to note that several freeholding company accounts make mention that should “legislation be enacted that made it cheaper and easier for leaseholders to enfranchise or extend their leases, they may not be able to meet their loan obligations”
As one understands Stephen’s argument, a contract signed is a tablet of stone irrespective of unfairness or consequences?
Interesting concept .
Meanwhile, back in the real world, here in the humble Midlands, two identical flats sold last week. One had a brand new lease extension back up to 99 years with higher ground rent: seller paid freeholder £12K for extension of +37 years. Other flat sold with original unextended lease.
The unextended lease sold for more than the extended lease.
Nice little earner for freeholder who gained extra ground rent too.
Stephen, sir, I salute all freeholders who can make an honest profit from this form of home ownership.
Makes Britain a great place.
All we need now are politicians capable of governing.
Paddy is in fantasy land if he believes £12k for a lease extension of +37 years on a “humble flat” is reasonable.
The report states quite clearly that the contracts are unfair, the situation clearly manufactured (“stitch up” was one phrase) and that Government can – and should – act to protect the market.
That’s the view of people who write the law.
I must work on my sarcasm! I urged neighbour to go statutory route or test market with offer to buyer of tenant notice to cut 2 year wait.
As Michael says, this informal extension does buyer no favours and did nothing for seller. Only winner was freeholder for doing nothing and getting more ground rent too.
No way a good deal but sadly this is feudal leasehold.
It comes as no surprise that the flat with the un-extended lease sold for more than the one that was extended?
Those that extended the lease by 37 years up to 99 years, walked straight into the trap that LKP and Louie Burns have been warning about.
In little over 15 years the newly extended lease will need to be extended again. But this time the extension costs will be based partly on the higher ground rent, thus dramatically increasing the cost.
Housing Associations like L&Q partner with private developers like Countryside Properties on regeneration projects and yes you guessed it are the recipients of Ground rents doubling every 15 years on Help to Buy flats throughout London.
It is nothing but greed for a housing association in receipt of government money to be charging doubling ground rents.
David Montague and Audrey Adams former CEO of Savills really don’t care about their leaseholders. It is discusting for them to not help their leaseholders and leave them unable to sell because mortgage companies won’t now lend. This is only 2 years after buying the dream flats under Help to Buy that are now unsellable.
Stephen “Tchenguiz” raises his head again!
Alas it`s 2019 not 1066 and a thousand years of feudalistic nonsense is not acceptable.
Those freeholders should experience some of the pain they cause. Karma.