Government consultation to improve the leasehold sector

The government is moving forward with its plans to tackle perceived injustices in the leasehold system by launching a fresh consultation on proposals to improve the leasehold sector for home owners “Implementing Reforms to the leasehold system in England”. Last year, the consultation on “Tackling unfair practices in the leasehold market” prompted assurances from the Government that urgent steps would be taken to implement widespread reform.

The proportion of new build houses sold as leasehold has more than doubled over the past 20 years and the government’s view is that this has been at best unnecessary and at worst a platform for misuse. The consultation discovered many examples of houses where there were no shared facilities or estate to justify the leasehold tenure. The results of last year’s consultation established that the majority of homeowners and developers agreed there were relatively few cases in which leasehold houses could be justified. This consultation considers how the ban on new build leasehold houses might be implemented, together with measures to reduce future ground rents for flats and houses to a nominal level, ensuring that the charges freeholders pay towards the maintenance of communal areas are fairer and more transparent and improving how leasehold properties are sold.

The consultation proposes that the ban on leasehold houses will be enforced by prohibiting the registration of such leases at the Land Registry. Any homeowner who has been incorrectly granted a leasehold title to a house would be able to cancel the lease and have the freehold title transferred to them at the earliest opportunity. One of the interesting complexities identified by the consultation is how to define “a house”. This is a problem which has troubled enfranchisement practitioners for over 50 years without reaching a definite answer. Secondly, the consultation makes it clear the effect of the ban on leasehold houses will be that developers themselves will be restricted to carrying out developments on freehold land, as the ban on granting long leases for houses will apply to any leasehold land acquired from 22 December 2017 onwards. The ban will also apply to assignments of leasehold land if a house or houses have been developed on that land after the legislation comes into force.

Whilst there are undoubtedly cases where the sale of leasehold houses (with escalating ground rents) are difficult to justify, it is arguably certain tenants being ill-advised, rather than the leasehold system itself, which is to blame. Consideration must be given to the serious housing shortage in the country and the impact these measures may have on the delivery of future residential developments. Leasehold is an essential part of the solution, both in the case of flats, but also houses where, for example, the developer might only have a lease themselves and so legally couldn’t sell the freehold even if they wanted to. Care must be taken to avoid the very real danger of trying to dismantle a system which has developed over hundreds of years, rather than working to address specific problems which have arisen recently. Whilst the leasehold revolution may be a short term political vote winner, a longer term vision for the housing market is needed. 

The consultation closes on 26 November 2018.

This article was written by Lauren Fraser, for more information please contact Lauren on +44 (0)20 7427 6418 or lauren.fraser@crsblaw.com