UK Government to Crackdown on Unfair Leasehold Practices

Following growing concerns amongst property owners and leaseholders regarding alleged mis-selling by property developers, mounting pressure has required that a government review be undertaken to clarify and address the issues.

Recently, the reported profits of many UK house builders have increased significantly which has served to further fuel the debate. The resulting financial burden on taxpayers who are footing the bill through the government’s Help to Buy scheme has exacerbated the problem with disgruntled leaseholders voicing their frustration at the unfairness of the fuedal leasehold system.

There are no signs reported of any slowdown affecting this area of the property market which is focused on mainly leasehold blocks of flats concentrated in London and the South East UK. It would appear that not even Brexit can dampen property purchasers’ enthusiasm to take advantage of the ever popular Help to Buy government scheme.

But leaseholders who have bought in to these leasehold arrangements are unhappy. They perceive they have been mis-sold their properties which they ultimately do not own under the leasehold system. Some say they are on the receiving end of what they believe are unfair ground rent arrangements with steep increases scheduled in the lease well above the accepted norm. Houses are reportedly being sold by some developers as leasehold and not freehold for no reason other than commercial gain with the income stream being sold on to benefit financial investors with no regard to the homeowners.

On the back of this growing discontent, the Government undertook a consultation in 2017 into tackling unfair leasehold practices in the UK property market. This resulted in the Housing, Communities and Local Government Committee (HCLG) launching an inquiry into the Government’s programme for leasehold reform in July 2018.The HCLG report on leasehold reform published on 19 March 2019 includes important and wide reaching recommendations affecting the management of blocks of flats and other leasehold property which are briefly summarised below. Significant changes are identified impacting block management agents, conveyancing solicitors, landlords, developers and estate agents throughout England and Wales including as follows.

Government policy should ensure that Commonhold becomes the primary means of ownership for flats in England and Wales.

The start of the property sales process should require that developers or estate agents produce a key features document in a standard form.

A recommendation to introduce new consultation procedures for privately owned properties to protect leaseholders affected by high value major works with a £10,000 threshold per leaseholder. Works exceeding this value should require the consent of a majority of leaseholders in the property before proceeding.

Mis-selling in the leasehold sector should be subject to investigation by The Competition and Markets Authority which should recommend appropriate compensation measures.

Ground rents on new leases should be Peppercorn or nil value.

The HCLG Committee has reached a conclusion that the government would be legally able to introduce new legislation which would effectively remove onerous ground rents from existing leases. Further restrictions could also be imposed limiting existing ground rents to 0.1% of the present value of a property. Ground rent should not exceed £250 per annum for any property.