Changing landscapes in residential leasehold

Closure of consultation on the draft code of practice.

The MHCLG recommends the introduction of a scheme which offers properties for sale with a 30% discount from the market value to people living locally who are first time buyers or key workers.  The Government's response proposes:

• to give Local Planning Authorities powers to require a higher minimum discount of 40% to 50% provided there is evidence of a need for and viability of homes at a higher discount;
• price caps after the discount has been applied of £250,000 in England and £420,000 in London, subject to Local Planning Authority powers to set a lower price cap in certain circumstances; and
• eligibility criteria including income caps for applicants and restrictions on re-sale of properties within the scheme.

The Government has described the draft Bill as bringing forward “the biggest improvements to building safety in nearly 40 years”.

The MHCLG has published a report estimating the number of leasehold dwellings in England in 2018/2019.  The report estimates that there were 4.5 million leasehold dwellings in England representing about 19% of housing stock in England.

Closure of First Homes Consultation

The headline announcements from the Government’s response are:

• a new national building safety regulator within the Health and Safety Executive will be established;
• each building will have an accountable person (usually the owner or landlord receiving service charges) responsible for understanding and managing fire and structural risks and a building safety manager to perform those functions on a day to day basis;
• new rights for residents to obtain safety information and new rules requiring residents to co-operate with the building safety manager;
• for each building to have a golden thread of building information related to fire and structural safety to be held digitally; and
• existing residential buildings above 18 metres will be subject to the new regime once they are occupied and there will be a transitional period for compliance, further  details of which will be provided by the Government during 2020.

The Government announces a £1 billion fund in 2020 to 2021 for the removal and replacement of unsafe non-aluminium composite material cladding systems (including high-pressure laminate, wood and other class C/D cladding) from high-rise residential buildings in both the private and social housing sectors.

The Competition and Markets Authority (“the CMA”) publishes an updated report on their investigation into whether there have been breaches of consumer protection law in the residential leasehold housing sector and the next steps, including future enforcement action by the CMA and the areas where the CMA considers that the law needs to change in the future.

The CMA raises concerns in relation to:

• lease terms under which ground rents may initially be high and increase significantly over time doubling more frequently than every 20 years.  The CMA estimates that there are around 13,000 leases with ground rents doubling more than every 20 years;
• high or escalating ground rents which could result in the lease becoming an assured tenancy under the Housing Act 1988 which may diminish security of tenure.  The CMA estimates that there are around 57,000 homes where levels of ground rent exceed the threshold for an assured tenancy;
• increases in ground rent linked to the Retail Price Index;
• complaints about the mis-selling of leasehold houses;
• complaints about high permission fees and service charges.  The CMA intend to publish information to assist homeowners to understand their rights and responsibilities;
• checks and balances.  The CMA intends to work with the Government to introduce a clear statement when a property is advertised for sale of whether it is freehold or leasehold (including the remaining term of the lease) and an estimate of the annual costs of owning that property;

The CMA announces it will be taking enforcement action in relation to certain instances of mis-selling of leasehold property and to address high and escalating ground rents.  Its investigation continues.

A House of Commons Briefing Paper: Leasehold high-rise flats: who pays for fire safety work is published.  The paper considers progress in implementing remediation works and issues raised by landlords and residents.

The Law Commission publishes its report on options to reduce the price payable on enfranchisement.  The report proposes three alternative schemes of valuation and a menu of sub-proposals which can be added to any of the three valuation schemes for the Government to consider.  It concludes that whichever final valuation method is selected must sufficiently compensate a landlord for interference with its property rights.

The Royal Institute of Chartered Surveyors, the Building Societies Association and UK Finance agree a new industry-wide voluntary valuation process in relation to buildings above 18 metres.  The External Wall Fire Review Process requires a fire safety assessment to be carried out by a suitably qualified person and is valid for five years.  

Closure of consultation: Electric vehicle charging in residential and non-residential buildings.

The MHCLG publishes a discussion paper on making home ownership affordable which proposes to introduce a simplified model for shared ownership of residential properties. 

The main proposals are the introduction of a new national simplified model for shared ownership, permitting increases of shares by 1% or more (currently the minimum incremental increase is 10%) and the removal of pre-emption clauses allowing landlords an exclusive right to market the property for eight weeks.

The Housing, Communities and Local Government Select Committee publishes an updated Briefing Paper on Leasehold and Commonhold reform.

The working group on Regulation of Property Agents publishes its report. The main recommendations are:

• to regulate property agents by creating an independent regulator and introducing mandatory qualifications and a code of practice;
• regulation to cover estate agents in the UK and letting and managing agents in England together with auctioneers, property guardian providers and online agents but not online portals;
• introduce a mandatory licensing scheme overseen by the regulator; and
• establish a new public body to undertake the role of regulator.

The Government publishes its response to the Housing, Communities and Local Government Select Committee Report on Leasehold Reform.

The Government confirms in its response that it agrees the following recommendations of the Committee:

• give clearer information to consumers on how to buy and sell leasehold properties;
• supports the increased use of commonhold which the Government will consider further when the Law Commission’s Report on commonhold is published;
• introduce a standardised “key features” document to assist consumers with the details of the lease before a purchase;
• future ground rents to be capped at no financial value;
• explore changes to the legislation surrounding legal costs;
• seek proposals from the Law Commission on changing the law of forfeiture; and
• require all freeholders of leasehold properties to be a member of a redress scheme.

The MHCLG publishes: Implementing reforms to the leasehold system in England: summary of consultation responses and government response.

The MHCLG publishes a consultation: Building a safer future: proposals for reform of the building safety regulatory system.  The proposals include a new regime for residential buildings over 18 metres and the introduction of the concept of a “golden thread” of information on the structure of the building and changes made to it to be held digitally and updated throughout the life cycle of the building.  In addition, new concepts of “dutyholders” and “accountable persons” to have clear responsibilities (to be defined in legislation following the consultation).

Closure of the Law Commission’s Consultation: Leasehold home ownership: exercising the right to manage.

The Housing, Communities and Local Government Select Committee publishes its report following its inquiry into leasehold reform.

The headline recommendations made by the Committee include:

• a proposal for commonhold to become the main ownership model for flats in England and Wales;
• for the Competition and Markets Authority to investigate mis-selling in the leasehold sector;
• to introduce a standardised key features document as part of a sales process identifying the tenure, the length of lease, ground rent etc;
• to ban financial incentives for buyers to use a Solicitor selected by a developer;
• to introduce legislation to remove onerous ground rents in existing leases and for ground rents in new leases to be a peppercorn;
• to restrict perceived onerous permission fees in existing leases;
• to introduce a standardised service charge demand;
• to introduce a new consultation process for leaseholders for major works in privately-owned buildings with a cap of £10,000 per leaseholder;
• to prevent freeholders from recovering legal costs through service charge or any other means where a leaseholder has been successful in legal proceedings against a freeholder.

Essential Reading: James Souter and Lauren Fraser - Is it the end of the road for residential leasehold? 

Essential Reading: James Souter and Lauren Fraser - Abolishing residential leasehold could create more problems than it will solve

The Law Commission publishes a consultation Leasehold home ownership: exercising the right to manage.

The Law Commission’s intention is to simplify the right to manage (“RTM”) process and to give power to the First-Tier Tribunal (Property Chamber) to waive procedural mistakes so that less claims to acquire the RTM fail. 

In addition, it proposes to relax the current qualifying criteria so that buildings with more than 25% non-residential parts could qualify for the RTM and to establish clearer rules for the transfer of information between the landlord and the RTM Company in relation to management matters.

It also proposes to permit an RTM Company to acquire the RTM over multiple buildings on an estate rather than, as is currently necessary, requiring a single RTM Company to acquire the RTM over a single building on an estate.  

Closure of the Law Commission’s consultation: Leasehold home ownership: buying your freehold or extending your lease.

Closure of consultation: Implementing reforms to the leasehold system in England: summary of consultation responses and government response.

The Tenants’ Associations (Provisions Relating to Recognition and Provision of Information) (England) Regulations 2018 come into force with the aim of making it easier for tenants’ associations of residential properties in England to become legally recognised and to obtain information from landlords about other tenants who have a legal right to join a tenants’ association.  One of the main changes is to reduce the threshold for an association to be legally recognised so that it must be recognised where it represents at least 50% of the qualifying tenants.

The MHCLG publishes the Government’s consultation paper: Implementing reforms to the leasehold system in England: A consultation.

The consultation provides more detail on the Government’s proposals to ban the sale of leasehold houses and to cap ground rents in new residential leases. The key points are:

• a proposed ban on granting long leases of houses which will apply to any houses developed on freehold land at any time and on leasehold land acquired from 22 December 2017;
• a proposed cap to ground rents on new residential long leases at £10 per annum;
• a proposal to give freeholders the same rights as those currently held by leaseholders to challenge the reasonableness of service charges levied through a deed of covenant or an estate rent charge; and
• landlords and managing agents to provide leasehold information in connection with a sale within a fixed period of time (to be determined) and with their fees to be capped at an amount to be determined.

The Housing, Communities and Local Government Select Committee launches an inquiry into leasehold reform.

Closure of consultation: Strengthening consumer redress in the housing market: A Consultation. 

The MHCLG publishes the Government’s response to the call for evidence on protecting consumers in the letting and managing agents market. The key proposals are:

• to establish a code of practice for letting and managing agents governed by an independent regulator;
• to require letting and managing agents to undertake mandatory qualifications in order to practice; and
• to set up a working group to develop a regulatory regime.

The MHCLG publishes a consultation: Strengthening consumer redress in the housing market: A Consultation to examine options for improving consumer redress in housing.  

The DCLG publishes the Government’s response to Tackling unfair practices in the leasehold market. The proposals include:

• introducing legislation to ban new residential long leases for existing or new build houses (except in specific circumstances, to be defined);
• introducing legislation restricting ground rents in new leases to a peppercorn;
• introducing a right of first refusal for lessees of houses, as exists for leaseholders of flats;
• addressing the perceived loophole in respect of Ground 8 of the Housing Act 1988 whereby a landlord may seek possession of a long lease under Section 8 (designed for short tenancies) without having to comply with the statutory requirements in order to forfeit a lease for non-payment of ground rent; and
• introducing legislation so that freeholders who pay charges for the maintenance of communal areas and facilities have rights to challenge the reasonableness of service charges. 

The DCLG publishes a call for evidence on Protecting consumers in the letting and managing agent market seeking views on whether a new regulatory model is needed for agents in the leasehold and private rented sectors.

Closure of consultation: Consultation on recognising residents’ associations, and their power to request information about tenants.

The DCLG publishes a consultation: Consultation on recognising residents’ associations, and their power to request information about tenants.

The Government proposes to make it easier for a secretary of a tenants’ association to obtain contact information of qualifying tenants from a landlord to increase the likelihood of the association being formally recognised under Section 29 of the Landlord and Tenant Act 1985.