Leasehold reform – Part 2
In December 2017, the Government pledged to carry out a wide ranging review of leasehold practices in England with the publication of their consultation, ‘Tackling Unfair Practices in the Leasehold Market’. This consultation set out a number of measures designed to address problems within the sector and since then, both the Law Commission and the Government have issued further consultations.
Part 1 of our review of leasehold reform (published in the summer edition) concentrated on the Law Commission led reforms. This article focusses on the consultations issued by the Ministry of Housing, Community and Local Government (MHCLG).
Implementing reforms to the leasehold system in England
In October 2018, MHCLG asked for views on how the reforms proposed in December 2017 should be implemented. A summary of the responses to the consultation and the Government’s proposals was published in June 2019.
In particular, the response provided details on how the Government propose to implement the following changes:
- the ban on the use of leasehold for new houses (subject to some limited exceptions, including shared-ownership);
- ground rents limited to a peppercorn in future leases (again with limited exceptions);
- measures to ensure that the charges that freeholders pay towards maintenance of communal areas are fairer and more transparent; and
- measures to improve how leasehold properties are sold (deadlines and capped fee for providing information).
Strengthening consumer redress in the housing market
This consultation sought views on the structure and use of a redress for consumers of housing, as many feel there are gaps in the current redress system. A summary of the responses to the consultation were published in January 2019 and the Government proposes to:
- introduce a Housing Complaints Resolution Service as a single point of access for all redress schemes;
- form a Redress Reform Working Group to look at ways to improve in-house complaint handling for certain parts of the housing sector;
- strengthen access to redress, including bringing forward legislation to underpin a New Homes Ombudsman (in relation to which a separate consultation is running); and
- address the gaps in redress services by extending mandatory membership of redress schemes.
Making home ownership affordable – discussion paper
On 28 August 2019, MHCLG issued its discussion paper on proposed changes to shared ownership. The consultation invited comments on three aspects:-
- making it possible to buy further shares at smaller increments (for example 1% increments);
- removing the pre-emption clause and introducing a landlord’s time-limited Right of First Refusal; and
- introducing a standard model for all providers.
This consultation ended on 29 September 2019.
MHCLG Committee Report
Following its inquiry, the Housing, Communities and Local Government Committee (HCLGC) published a report on leasehold reform. The Government published their response in July 2019 and agreed some of the measures proposed by HCLGC (some of which are already being dealt with in other consultations). There are a number of proposals, but some of the more significant are:
- provision of clearer information on buying and selling leasehold properties;
- consideration of the HCLGC’s views that commonhold should be the primary model of ownership for flats;
- a standardised ‘key features’ document to provide clarity for consumers of leasehold properties and the use of standard forms for invoicing service charges;
- a new consultation process and a major works costs threshold; and
- consideration of the HCLGC’s recommendations on permission fees, major works and other charges.
The HCLGC also made recommendations to the Competition and Markets Authority (CMA) that they investigate the miss-selling in the leasehold sector. The investigation by the CMA is now underway.
The Regulation of Property Agents Working Group, chaired by Lord Best, was tasked by the Government to review the regulation of property agents.
On 18 July 2019, the Working Group issued its report and the proposals include the introduction of a new regulatory framework which will cover all those carrying out property agency work, and a new independent regulator to deal with enforcement of the framework.
Some of the main features of the new regime are:-
- a requirement to have a license to practise from the new regulator;
- a single set of principles set out in a code of practice with clear standards of behaviour;
- mandatory qualifications for all property agents; and
- the regulator will have a statutory duty to ensure the transparency of leaseholder and freeholder charges.
Finally, an industry pledge was introduced by James Brokenshire on 28 March 2019 to crack down on “toxic” leasehold deals. Many leading property developers and freeholders have already signed the governmentbacked pledge.
Over the next few years, it is clear that there are to be significant changes in leasehold and so developers across the sector will need to ensure that they are ready to implement these changes.