But will its reforms help 100,000 trapped in unsellable homes?
The Law Commissioner Professor Nicholas Hopkins and his five-strong team came to Manchester yesterday to address 120 leaseholders organised by LKP and the National Leasehold Campaign group.
He was joined by Justin Madders, Labour MP for Ellesmere Port and Neston, an official from the DHCLG and professional negligence solicitor Robert Godfrey, of Simpson Millar.
The meeting included leasehold owners of leasehold houses, flats and retirement flats, as well as a few freehold home owners in “fleecehold” managed estates.
Mr Madders made a powerful speech denouncing the “industrial scale racket” of leasehold house sales and doubling ground rents across the country.
Last week he proposed a Private Members Bill whereby residential freeholds could be purchased for 10 times annual ground rent. Unfortunately, the Bill was not heard.
This proposal is rejected in the Law Commission’s 500-page consultation as likely to violate the human rights of the private equity speculators who are hitching a ride on ordinary families’ homes by taking a punt on the freehold. And that includes the human rights of anonymous beneficial owners who hold the asset in company structures offshore.
Professor Hopkins urges all leaseholders to respond to the consultation “even if you only respond to one question”.
A key question from members of the audience with doubling ground rent or ground rents above 0.1 per cent of the property’s value, was:
Should I wait for the Law Commission reforms to be enacted, or extend my lease or enfranchise now?
To which Professor Hopkins had to reply: “I don’t know.”
Ultimately, the decision whether to implement the report will be the government’s.
In its report, the Law Commission rightly references the “irreconcilable” different views of leaseholders and freeholders.
“Decisions about which side to favour, and how to strike a balance between the competing interests, depend to a large extent on political judgement.”
The Law Commission report is a solid piece of working looking at ways to make enfranchisement and lease extension simpler, cheaper and easier.
It introduces proposals to introduce a simplified procedure to enfranchise that should be the same for flats and houses.
It ends some of the complexities, such as having to own a property two years before being able to buy its freehold.
It has some new ideas, such as leaseholders should have a “right to participate” in sites that have already enfranchised.
It suggests allowing a single maisonette – where there are just two – to enfranchise, which will strengthen the hand of the non-freeholder in such a set-up.
It suggests collective freehold acquisition of an entire estate of multiple buildings, blocks and houses, which could be a means out of “fleecehold” management structures.
The report references the tactical gaming of the leasehold enfranchisement process.
But it sticks with 25% commercial property in a block to be an impediment to enfranchisement. Why?
And it makes breezy and unreferenced remarks about a functioning leasehold sector:
“… we would emphasise that, while there have been abusive practices in leasehold, there are other landlords who operate fairly and transparently.”
It would be interesting to know what makes the Law Commission make this observation.
LKP would argue that it is not a question of good or bad freehold owners, but whether they should have the power and income streams (for so little, including initial monetary outlay ) that they do have.
The Law Commission says that “leasehold does not provide outright ownership”. So, hopefully, this will encourage government and organisations such as the Advertising Standards Authority to address how these contracts are sold as “home ownership” and, in many cases, with taxpayer subsidy through Help To Buy.
The Manchester meeting was also addressed by professional negligence solicitor Robert Godfrey, of Simpson Millar, advising leaseholders on legal actions against their conveyancing solicitors.
He told the meeting that each individual claim would be different, and cautioned against over optimism that all have a case.
LKP is aware of 17 cases where conveyancing solicitors or their insurers have reached settlement.
It does seem to suggest that those charged with the responsibility of drafting new legislation are forced to walk down a very very narrow path
On the one hand they have to try and deliver a government promise to make it cheaper easier to extend a lease / buy the freehold yet on the other hand not abuse human rights of the freeholder
I think more than ever the changes will be this
1) prescribed capitalisation and deferment rates and relativity and an online calculator to assist
2) caps on landlords legal and valuation fees or possible no rights to any cost recovery if the freeholder purchased the freehold post 1993. As the freeholder would have known on acquisition that there was the risk of a lease extension or enfranchisement
3) both lessees and freeholders given the right to insist that the freeholder retains the non participators share by way of an overriding lease
4) all new leases to give the option of a ground rent of £10 or a higher rent in return for a defined lower premium – this has been mooted for the retirement sector but I think it will be extended to all flats and avoids creating overnight a two tier system. The net present value of the stream of ground income using a prescribed discount to be shown next to the premium to make it patently clear what the obligation is of the rent – avoids ten year doublers being slipped in. The lessee can then make an informed choice.
The presence of a specialist lawyer on compensation claims would suggest that the ability to draft legislation correcting onerous rents is fraught with difficulties and the best that can be done on this point is to draft legislation defining the start point of the claim for negligence to be six years after the first rent review . The difficulty with an onerous rent is that it can only be judged as being onerous in the context of the overall deal – some second hand purchasers may well have bought the property cheaper as a result of the ground rent terms and therefore cannot claim any damages for the rent for obvious reasons
If ground rent terms are shown in the lease and the lease is for a defined term if that contract/deal/lease is to be altered then the freeholder should expect to be adequately and fairly compensated for the loss of the rent that the deal proposed – Madders proposes its discounted at 10% which in today’s market of very low long term interest rates is without any foundation at all. But where his proposals fall down completely is that the compensation awarded to the freeholder for not receiving the property at the end of the term but keeping it for a further 90 years or indefinitely is valued at Nil – that is so provocative that it undermines much of the other valid arguments he makes
Inevitably this reply will be greeted by some with immature replies in capital letters and rudeness and arguments that as some freeholders have abused their powers all should suffer in the brave new world and that the ground rent is for no service (which of course it is but it’s a burden that should be valued and considered when buying the property).
It would be interesting to hear about ideas that have regard to the difficulties faced by the law commission and ides that address both sides of the argument
STEPHEN, LET ME NOT DISAPPOINT YOU.
YOU MENTION THOSE THAT BENEFITED FROM ONEROUS GROUND RENTS BY PURCHASING A PROPERTY CHEAPLY..SO THE SELLER HAS LOST VALUE.. OR IS THAT ALRIGHT BECAUSE THEY MADE AN INFORMED CHOICE TO SELL?I
The seller has indeed lost out and therefore the purchaser of such a lease who pays a price reflecting the onerous terms should not be able to have the rent removed without paying the proper sum.
Therefore Taylor Wimpey should not extend the compensation scheme automatically to second hand purchasers but rather they should look at settling compensation on second hand purchases between the purchaser and the vendor.
All of this would never have arisen if my idea of having the NPV of the ground rent valued using a prescribed discount rate is shown next to the premium on Box LR7 of the lease. With stamp duty being levied on the premium plus the rent. Then the purchaser would appreciate what the value of the rent is and unless the premium is reduced accordingly the prospective purchaser would walk away from the deal
Great to see the arbitrary 25% rule has been picked up.
Developers are moving away from predominantly residential buildings. The Law Commission’s enfranchisement proposals seem blind to this emerging reality.
Just give residents in mixed-use buildings a right to buy the head lease!
I think In many cases that would work with the head lessor given greater power over he service. Haves it has to recharge
It is wrong to allow a freehold landlord to pass the costs of running his commercial ventures onto residents’ service charges. And they can do that at the moment.
The freeholder can only recover costs incurred in maintaining the building as set out in the leases subject to the costs being reasonable
Stephen this is why the Freeholder brings in the Landlord who can and then pass on to the Landlord if part of the same organisational group as Peverel Retirement, now Firstport Retirement and Kingsborough Insurance had done for years passing on the commission they made, in 2009/10 circa 35%..
It should have read
I think In many cases that would work. The head lessor to be given greater power over the service charges it has to recharge the sub lessees
Stephen surely you mean Lessees not sub Lessees it gives the impression that Leaseholders are sub, why use this demeaning terminology?
There is a need to distinguish between a lessee who is a head lessor and a lessee who holds his interest underneath a head lease. The definition used for the later is sub-lessee. It is the correct term to describe the relationship it is not a judgement on my part
I agree there is a need to distinguish between a lessee who is a head lessor and a lessee who holds his/her interest underneath a head lease.
I understood this was known as a Lessor?
Leaseholders need to be empowered with a right to buy the residential head lease.
You CANNOT allow those in possession of the freehold to have the residential head lease as well.
Government must look into how the leasehold scandal is experienced by those in mixed-use developments. This, in many ways, is worse than being in a more traditional tower block where you have enfranchisement opportunities and Right to Manage.
Surely, the first priority should be not to allow any more long leases to be created?
The artificial long lease came to the fore only because older land law had become unworkable, back in the 14th century, in English courts. Prior to that, a lease term longer than 40 years was thought to be impossible, due to obvious impracticality.
What on earth are intelligent human beings doing, still allowing such artificiality in the modern age?
The resulting permutations are endless. I can see Stephen is trying to make some workable sense of it, but I would prefer my original vendor simply to be obliged to buy back its leases at the modern equivalent of what it sold them for. Then it could simply rent them out from year to year, rather than pretend that a lease in itself can possibly be the same thing as ownership.
Meantime, we’re all stuck in a hopelessly artificial halfway house.
Finally having time and willpower to wade through the 500 plus pages of the LC consultation.
LC seems to suggest an absence of response by leaseholders could mean contentment?
I would like to know if Sajid Javid passed on my two responses to him? Or did all those 6000 responses go in the government shredder?
Not impressed so far.
Every mention of Tribunals having even more of a role shows me the law commissioners do not get it. Or maybe they do?
Two facts for Stephen, not in caps…
Many investor freeholders invest far less than 5% of total value – far less than one lessee in our case – yet seems they have more delicate human rights in leasehold reform than lessees? Explain?
I see no evidence – anyone invited to supply – of leaseholds sold at ‘discount’? Hardly provable?
The Manchester meeting was also addressed by professional negligence solicitor Robert Godfrey, advising leaseholders on legal actions against their conveyancing solicitors. He informed the meeting that each individual claim would be different, and cautioned against over optimism, that all have a case.
LKP is aware of 17 cases where conveyancing solicitors or their insurers have reached settlement.
Can we be informed about these settlements or are they subject to Gagging Orders?