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Optimum Professional Services update on leasehold reform

Earlier this year, the Leasehold Reform (Ground Rent) Bill was published, which aims to put an end to ground rents.

Earlier this year, the Leasehold Reform (Ground Rent) Bill was published, which aims to put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales and this is now making its passage through Parliament. The Bill is currently in The House of Lords for the third reading.

But there is evidence that opposition to unfair ground rents has already made an impact. The Bill, once passed, will put the last nail in the coffin of the practice that has caused such difficulties for householders across the country.

There are around 4.6 million leasehold homes in England, according to estimates from the Ministry for Housing, Communities and Local Government (MHCLG).

Around 68% of these are flats, while 32% are houses. Most flats in the private sector are leasehold (an estimated 93% of owner-occupied flats and 73% of private-rented flats). Leasehold houses are uncommon across England, at around 8% of the stock. However, 28% of houses in the North West region are leasehold.

The issue really came to the fore when more developers began selling newbuild houses on long lease agreements, as this represented for them an income stream from grounds rents. The proportion of newbuild houses sold as leasehold rose from 7% in 1995 to a peak of 15% in 2016.

However, the proportion has subsequently fallen and was at 1% in February 2021, which suggests the pressure being put on developers is having an effect.

So what is leasehold? Long leaseholders buy the right to live in their homes for the term of the lease. This is common practice with flats where the footprint of the ground will be owned by the freeholder (usually the landlord) and the flats are then leased. However, in general houses had been bought and sold on a freehold basis.

There are a number of problems associated with leasehold. Back in 2017, when he was Secretary of State for Communities and Local Government, Sajid Javid said: “Leasehold should be just that, a tool for making multiple ownership more straightforward. It should not be a means of extracting ever-more cash from the pockets of already overstretched house buyers. Yet, in the hands of unscrupulous freeholders, that is exactly what it has become.”

Issues cited include high service charges and a lack of transparency over what they are being charged for; freeholders blocking attempts by leaseholders to exercise the Right to Manage; excessive administration charges and charges for applications to extend lease agreements or enfranchise; and leaseholders not understanding their rights and obligations.

The Bill’s aim is to lead to fairer, more transparent homeownership for future leaseholders and is part one of a two-part legislative process to reform the leasehold system. The Bill focuses specifically on ground rent clauses within future long residential leases. Further leasehold reform is to follow later, during the life of this Parliament.

This Bill means that if any ground rent is demanded as part of a new residential long lease, it cannot be for more than one peppercorn rent per year, meaning that future leaseholders will not be faced with financial demands for ground rent.

Also, the Bill bans freeholders from charging administration fees for collecting a peppercorn rent. Freeholders will face fines of up to £5,000 if they charge rents contravening the terms of the Bill.

As conveyancing lawyers, we are keeping a close eye on the legislation as it passes through Parliament and also looking forward to the next stage.

If you own a leasehold property and are looking to buy or sell and want legal advice, please contact Optimum’s property law team. Email Iain Mason on imason@optps.co.uk or Karen Gleed on kgleed@optps.co.uk

optps.co.uk

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