By Sebastian O’Kelly
The Opposition and some media have been quick to see the government back-tracking on leasehold reform owing to the Queen’s speech today, but LKP thinks this reaction is a little hasty.
It could also be just muddle, there being no decent policy advisor looking at leasehold ever since Sajid Javid’s team was scattered when he was promoted from Communities Secretary to become Home Secretary.
The Queen’s speech – December 2019 background briefing notes are still encouraging:
● The Government is taking forward a comprehensive programme of reform to end unfair practices in the leasehold market. This includes working with the Law Commission to make buying a freehold or extending a lease easier, quicker and more cost effective – and to reinvigorate commonhold and Right to Manage.
● The Government will ensure that if a new home can be sold as freehold, then it will be. We will get rid of unnecessary ground rents on new leases and give new rights to homeowners to challenge unfair charges. The Government will also close legal loopholes to prevent unfair evictions and make it faster and cheaper to sell a leasehold home.
● For those in the social rented sector, we will bring forward a Social Housing White Paper which will set out further measures to empower tenants and support the continued supply of social homes. This will include measures to provide greater redress, better regulation and improve the quality of social housing.
LKP is distinctly queasy about the term “necessary ground rents” as we have argued repeatedly that no ground rents are necessary: they are a speculative income stream in the homes of ordinary families, often owned by murky offshore investors, and are for no service whatsoever.
We were delighted when Sajid Javid committed to zero ground rents in future builds and – after a few months of wobble – this was re-confirmed by his successor James Brokenshire.
The latest Communities Secretary Robert Jenrick immediately confirmed on Twitter that the policy will be ZERO ground rents in future:
His Labour shadow John Healey, who has spent months fine-tuning excellent policies on leasehold reform, said:
“This looks like the Conservatives backtracking in the face of opposition from vested interests in the property market.
“The truth is a Conservative government can’t help leaseholders because they won’t stand up to those who are profiting out of the leasehold scandal.”
LKP is not persuaded of this. It would be an insanity for the Conservatives now, with their huge majority, to fail to get to grips with leasehold – a hugely expanded form of tenure, and therefore problem, in recent years.
The Independent was also critical. Well, at the pace things are going, we should not have long to find out …
Boris Johnson waters down plans to help homebuyers by ending sales as leaseholds
Boris Johnson’s government has watered down commitments to end the sale of new homes as leaseholds and combat exploitative arrangements for homeowners. It comes as the new majority Conservative government unveiled dozens of bills in the Queen’s Speech on Wednesday, as Boris Johnson set out his domestic agenda beyond Brexit for the coming year.
Here is the government press release
Queen’s Speech: Delivering fairer, more affordable homes for buyers and renters
Better deal for renters with new lifetime deposit – making the process of moving home easier and cheaper for millions Confirmation of plans to abolish ‘no-fault’ evictions – preventing landlords from evicting tenants at short notice and without good reason Government also announces plans to slash the cost of new
Two mentions of zero ground rents:
“The Queen’s Speech has also set out further detail for new legislation to bring an end to the unscrupulous practice of unnecessary leaseholds – introducing new laws to ban new houses being sold on a leasehold basis and reducing ground rents for new leases to zero.”
“We are moving forward with legislation to set ground rents to zero, abolish leasehold houses and prioritise the safety of residents with the biggest change to building safety laws for 40 years.”
The statement states
“make buying a freehold or extending a lease easier, quicker and more cost effective”
I take it that “cost effective” does not mean the principals of valuation will change but rather the professional fees of the landlord the lessee currently has to pay will be capped or made the entire responsibility of the freeholder
I have stated that where the landlord has acquired his interest post 1993 that it cannot come as a surprise when an enfranchisement claim / lease extension claim is served and as that possibility was factored into the price the landlord should in those case bear their own costs – saving the lessee £2000 to £3000 in costs
Setting prescribed rates to be used in the current formula and having an online calculator would also save costs all round to the benefit of the lessee
The valuation formula and principals have been the subject of some 25 years of case law and with the published data an valuation calculator should be capable of being compiled
The government has a Very narrow bridge to walk between keeping its promise to lessees to make it cost effective for the lessee and yet at the same time ensuring adequate compensation is paid to the landlord
It seems only addressing the legal and valuation costs can enable the government to walk that bridge
This very narrow bridge for fair compensation? Is there room on it for Landlord’s to disclose how much they paid for the freehold? If a Landlord paid £3,000 for a freehold 5 years ago would fair compensation be based on the £3,000 they paid or the £15,000 they upped their valuations to?
Let us be very clear: notwithstanding “loopholes” (offshore or otherwise), the procurement of freeholds in breach of section 4 of part 1 of the LTA 1987 (as amended by the Housing Act 1996) is a criminal offence.
And whilst breach of existing qualifying leaseholders right of first refusal (RFR) may be regarded by some as redundant and ready to be replaced with “easier and cheaper” measures being proposed by the Law Commission, the fact remains that many existing qualifying leaseholders have already had their leaseholds literally stolen from under their feet.
The Law Commission must address this issue alongside recommendations for the future, as failure to do so may be interpreted as rewarding criminality.
The freeholder deserves a maximum of 1% of property value or 10X ground rent whichever is lower, to a maximum of £5000. They have been more than adequately compensated from ground rents and permission fees in the meantime. Then leasehold can properly start to die off and rest in peace in England and Wales.
Simon, perhaps 1% of land value would be more appropriate as the land is the freehold?