The evidence provided to the Communities Select Committee by lawyers – and the Law Commissioner Professor Nicholas Hopkins – add up to devastating criticisms of the leasehold system.
Three lawyers who have made their careers in the sector barely had a good word to say about leasehold law, when they came before the Select Committee on January 14. While Professor Hopkins made clear that he believed fundamental reforms are required that go beyond his current inquiries.
Shoring up a system with such fundamental unfairness is “putting sticking plasters” on leasehold law, said Guy Fetherstonehaugh QC.
He urged the adoption of commonhold, instead. Mr Fetherstonehaugh added:
“The trouble with leasehold is that it is essentially an antagonistic relationship. The interests of landlords and tenants will not coincide. It would be almost impossible for them to do so.
“The great thing about commonhold, if it works, is that there are not really two parties. It is the commonhold owner and then the commonhold community, which is all the owners put together.
“It is not like one of those cobbled together leasehold management owning bodies that has representatives of leaseholders on it. They are still in a state of conflict towards each other. Commonhold is not like that.”
Solicitor Giles Peaker, of Anthony Gold Solicitors, urged “wholesale reform”, as did barrister Amanda Gourlay.
Not one of the lawyers before the committee defended the status quo in leasehold.
Law Commissioner Professor Nicholas Hopkins echoed these sentiments saying:
“Looking at the landscape of leasehold legislation, I would have to say it is not fit for purpose as it is …
“These are not new concerns … But this time those concerns have become much louder. The need for reform has become much more urgent.
“At the moment, there is a lot happening, both in what the Government are doing and in the work we are doing. I hope that is the start of a process that will lead to a holistic, wholesale review of residential leasehold law.”
Professor Hopkins also addressed the failure of commonhold, introduced in the 2002 Commonhold and Leasehold Reform Act:
“I would certainly say one of the reasons commonhold has not taken off at the moment is that those financial incentives are there for the developer.”
Mr Fetherstonehaugh made a plea to “do away with ground rents altogether”.
Developers might not like losing the “icing on the cake”: he said: “They sell the cake and then the icing is the ability to collect ground rent for a long time.”
Mr Peaker told MPs that the government suggestion that ground rents remain capped at £10 was a “mistake”.
“In terms of value, it might seem to be little more than nil or a peppercorn, but one of the issues preventing the adoption of commonhold, as Guy has pointed out, is, frankly, the existence of ground rents full stop. As long as they exist, even at a relatively minor level, it will be a major impediment to the adoption of commonhold.”
Amanda Gourlay warned of the possible danger of lease forfeiture owing to the government’s £10 ground rent suggestion.
“… it is possible to bring forfeiture proceedings if you have a ground rent of £10 in arrears for more than three years, with all the associated stress and cost that can incur.”
Mr Fetherstonhaugh said: “Forfeiture is fantastically draconian,” while Professor Hopkins hoped that an earlier Law Commission report urging its ending is taken up and enforced.
The property tribunal also came in for strong criticism from lawyers who spend their careers appearing before it.
Mr Peaker said: “The First-tier Tribunal was originally, and still is in some ways, supposed to be effectively a cost-free jurisdiction. Because of the way the case law has gone, particularly on lease clauses, on recovery of costs in contemplation of a section 146 notice, the forfeiture process, freeholders are routinely now recovering their costs of a tribunal, either under the service charge or under an administration charge, even where the tenant has been reasonably successful in the tribunal and has reduced the service charge.”
Instead of leaseholder litigants having to persuade the tribunal to issue a section 20C, preventing the freeholder from recovering his costs, “that should be the default position”.
“The freeholder should have to show why that should not be the case, rather than the leaseholder, again usually without legal representation.”
The government is consulting on a housing court, but Mr Peaker was not impressed by the “early mutterings” if it replicates the unfairness of the property tribunal.
Mr Featherstonehaugh repeated his enthusiasm for commonhold.
“It will not be a bed of roses. … we looked at the Commonwealth experience. That is a very well-established jurisprudence. We looked at the cases that had been generated by the strata title legislation.
“You get neighbours who are at war with each other; one does not want to pay for the reroofing of the block and everybody else does, so that sort of thing will happen, but nothing like what goes on in leasehold.
“Commonhold is not a panacea for absolutely everything, but if it is amended slightly—I do not think there is much wrong with it—and gains traction with the mortgage lenders, I think it will take off and be much better.”
The full Communities Select Committee session can be read here:LawyersSelectCommitteeJanuary14