Leasehold reform back on the political agenda

By Dermot Mckibbin

Just before Christmas Conservative MP Peter Bottomley and Labour MP Jim Fitzpatrick, the two joint chairs of the all-Parliamentary Group on Leasehold and Commonhold reform, secured a rare debate in the House of Commons on leasehold reform. (see also the House of Commons Library briefing for the debate).

The Government Housing Minister, Gavin Barwell MP told Parliament that he felt concerned about the difficulties that leaseholders were facing and that he would come back to the Commons in 2017 with reform proposals.  It is rumoured that the forthcoming Housing White Paper will contain further details. The Shadow Minister Ruth Cadbury MP announced that Labour would end the practice of excessive ground rents for leasehold houses and favoured the introduction of the Commonhold tenure as well as other reforms.

It is now clear that there is a political auction between the 2 major political parties in Westminster as to who can offer the best housing policies for leaseholders. Research by the coalition Government found that there are more than 4.1 million leasehold dwellings in England.  This figure is significantly higher than the previous estimate of between 2 and 2.5 million.

The Leasehold Knowledge Partnership Group (LKP ), who service the all-party group, estimate that there were around 5.37 million leasehold properties in England and Wales at the end of 2013.  43% of all new build registrations in England and Wales in 2016 were leasehold. There are too many votes at stake here for any political party to ignore the housing needs of leaseholders.

The problems of leasehold houses featured high in the debate. Both the Guardian and the Telegraph are united in their coverage of this issue. In the debate the Government Minister quoted LKP figures that 6,000 leasehold houses were built last year. Some of these properties have no estate management services and exist only to provide an income stream for the developer. The ground rent is sold off separately by the developer; often the leaseholder does not know about the sale. Some house purchasers who have  often been advised by a solicitor appointed by the builder find out that the ground rent can double every 10 years. This has the effect of making the house unsellable. This is an issue in the North West.

The consumer magazine Which estimated in 2012 that the amount of unlawful service charges was £700 million. Jim Fitzpatrick MP believes that the current figure could be £1.4 billion. Several MP’s referred to a national survey carried by the Leasehold Advisory Service in which 53% of leaseholders surveyed regretted buying a leasehold property. This is a high rate of dissatisfaction.

Several MP’s referred to the fact that the first tier property tribunal is no longer an informal dispute resolution scheme. Leaseholders who apply to the tribunal for a determination about unreasonable service charges are likely to face a barrister employed to defend the interests of the freeholder. Under the terms of their lease many private sector leaseholders can find themselves liable to pay the legal costs of the freeholder even if they have been successful at the property tribunal.

Peter Bottomley MP referred to a private leaseholder who was liable to pay the legal costs of his freeholder after a successful application to the tribunal. He refused to pay these costs. The freeholder applied to court for forfeiture of his lease as they were entitled to do. Had this application been successful the freeholder would have been entitled to all of the equity in his property even though the debt was comparatively small. Successive governments have ignored the Law Commission’s proposals to abolish forfeiture which is a nuclear weapon in favour of freeholders.

Insurance is a major issue for private sector leaseholders. The financial conduct authority has found that freeholders are able to pocket commissions of 40%.There  has been little interest by the Serious Fraud office and others in tackling cartels operated by at least one freeholder.

Unlike England and Wales, most English speaking countries no longer use the leasehold tenure system. The Commonhold and Leasehold Reform Act 2002 sought to introduce a system of Commonhold whereby the legal ownership would be held jointly by all leaseholders. Residents could decide for themselves how to manage their properties.

Unfortunately there are very few examples of the Commonhold tenure. The Act failed to make it compulsory for newly built properties. For existing properties all leaseholders in the property had to agree to convert to commonhold. This proved impossible to achieve. Under the commonhold system there is a strong potential for many leasehold problems to disappear as all the joint owners will have a strong incentive to manage their property as efficiently and fairly as possible.

The Conservatives are too close to the building lobby and the interests of property to be in favour of any large scale reform of the leasehold housing market. Their record since 2010 on leasehold reform speaks for itself. There is a now an opportunity for Labour to win the votes of leaseholders. More thought needs to be given to raising this issue within the Labour Party as leasehold housing issues are seldom discussed within the party itself.

Dermot Mckibbin is a member of Beckenham CLP. He is a retired housing lawyer.


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