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Leasehold reform: Positive steps taken to protect leaseholders

Leasehold reform: Positive steps taken to protect leaseholders

Posted on May 15, 2019, by David Smith

Chartered Legal Executive and Head of the Leasehold team in Coodes Solicitors’ Residential Property team, David Smith, outlines the Government backed Public Pledge for Leaseholders and the impact it will have on property owners.

Many years ago, the first property I bought was a leasehold flat in a converted coach house. I recall that the term of the lease was 999 years and at the time, I was not particularly acquainted with the distinction between freehold and leasehold property. To be honest, I don’t think I was particularly concerned as I had found a property I really liked and, more importantly, could afford.

My personal experience of leasehold property was mostly problem free. Now that I have worked in residential conveyancing for many years and have dealt with numerous leasehold properties, I appreciate how straightforward my leasehold title was, having fixed ground rent and a long term of years. But this isn’t the case for a lot of leasehold property owners.

After the law was changed in Scotland, there were calls for reform to leasehold law in England and Wales as well. Although progress is slow, positive steps have already been taken with the introduction of a Government backed Public Pledge for Leaseholders. Introduced on 28th March, organisations pledge to help homeowners who are stuck in unfair and costly leases.

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What is the Public Pledge for Leaseholders?

As many as 40 large freeholders have signed up to the Government backed pledge to offer better protection to leaseholders, including Bovis Homes, Taylor Wimpey and Estates and Management Limited.

A key point of the pledge is providing ground rent to increase in line with the Retail Prices Index, as some ground rents currently double within a 20 year period. The pledge calls for all future leases not to provide for ground rent to double and companies signing the pledge are committed to doing away with doubling clauses altogether.

There is also an emphasis on all processes being transparent and fair. This includes ensuring that any costs arising from the lease are brought to the attention of a potential leaseholder. The solicitor acting for the buyer, having a duty to act in the best interest of their client, must also ensure their client is aware of the costs involved in entering the lease, before committing to the purchase.

Will the Leasehold Reform Bill be passed in 2019?

The Leasehold Reform Bill was first introduced to Parliament 7th November 2017. The purpose of the Bill is to introduce measures to benefit the leaseholder, protecting what is usually their main asset.

The Bill includes making it easier for leaseholders to extend their leases, with landlords being responsible for their own costs. It also allows leaseholders to collectively purchase the freehold of the building and importantly, it tackles unfair leasehold terms.

The Bill is expected to have its second reading in the House of Commons, but the date is yet to be announced. The Law Commission has said that it is unlikely there will be a Law Reform Act passed in 2019.

I am hopeful that the Act will be with us in 2020. The overhaul is long overdue but it is good to see many large developers signing the public pledge.

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What to consider when buying a leasehold property

If you are looking into purchasing a leasehold property, then there are key issues to consider.

It is crucial to know the term remaining on the lease. Once it falls below 85 years, the term may have a serious impact on the value of the property. Mortgage lenders each impose a requirement for a minimum number of years remaining, if they are to lend on it. These requirements vary. For example Leeds Building Society requires a term of at least 85 years from the date the mortgage is completed, whereas the Halifax Plc requires 70 years.

If you are looking to sell a property, you may want to consider extending the property lease. For more information on how to extend a property lease, see our previous blog.

In addition to the usual household bills, such as utility costs and council tax, leasehold property owners also have to pay an amount of the ground rent and service charge. The ground rent is determined in the lease and sometimes a lease provides for a fixed amount, but many provide for an escalating rent. This may result in substantial increases in the amount of rent payable in a short period of time.

Maintenance charges are usually paid to the management agents and the amount will be determined upon the actual costs incurred in providing the services, as set out in the lease.

For more information on how the leasehold reform could affect you, see our previous blog.

I’m glad to see positive steps are being taken to protect leasehold property owners, although progress is slow. The impressive response to the public pledge demonstrates how important it is for a leasehold reform in England and Wales.

For advice on buying or selling a leasehold property, please contact David Smith in the Residential Property team on 01409 253425 or david.smith@coodes.co.uk 

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