The leasehold scandal has been a hugely contentious issue in recent years because of the expensive, escalating ground rents leaseholders have been subjected to, among other issues including cladding, rising service charges and misselling.
What could be considered a victory for leaseholders occured in September when following an investigation conducted by the Competition and Markets Authority (CMA), it was revealed that leaseholders will be freed from costly contract terms with housing developer Countryside Properties. This follows on from similar action taken by other major housebuilders.
Here, the block management arm of Oakfield Estate Agents explain the newest developments in the leasehold scandal, what’s happened before and what could come next for leaseholders.
A long-term issue – what is the background?
The leasehold scandal first broke towards the back end of 2016 and the start of 2017 when a number of major stories appeared in the news.
In response, the government published a housing White Paper, Fixing our broken housing market (February 2017), which included a commitment to ‘improve consumer choice and fairness in leasehold’.
Meanwhile, a consultation paper, Tackling unfair practices in the leasehold market – also 2017 – was seen as the first step in fulfilling this commitment.
The paper included plans to address leasehold sales of new-build houses and to control ground rent levels in new lease agreements.
A summary of the responses received and the government response was published in December 2017. In the ministerial foreword, the then-Secretary of State for Housing, Communities and Local Government, Sajid Javid, committed the government to act on leasehold abuses.
Specifically, the 2017 government – led by Theresa May – insisted it would: legislate to prohibit the creation of new residential long leases on houses, whether newly built or on existing freehold houses, other than in exceptional circumstances; restrict ground rents in new leases of houses and flats to a peppercorn value; address loopholes to improve transparency and fairness for leaseholders and freeholders; and work with the Law Commission to support existing leaseholders, including making buying a freehold or extending a lease ‘easier, faster, fairer and cheaper’.
The 2017 government also published a further technical consultation paper, Implementing reforms to the leasehold system in England, on October 15 2018, with the outcome published on June 27 2019. Eshter McVey, then-Minister for Housing, confirmed the Johnson government’s intention to take forward these measures in a Written Statement on 31 October 2019. The Conservative manifesto in December 2019 also pledged to continue with reforms to leasehold.
The CMA takes action against major housebuilders
In September 2020, the CMA initiated enforcement action against four of the largest housing developers in the UK.
The firms the CMA took action against were Countryside and Taylor Wimpey, for using possibly unfair contract terms, and Barratt Developments and Persimmon Homes concerning the possible mis-selling of leasehold homes. The CMA has previously secured commitments from Persimmon and Aviva as part of its investigative action, helping thousands of leaseholders gain justice.
Following the CMA’s investigation, leaseholders with Countryside Properties will no longer be subjected to ground rents that double every 10 or 15 years. Countryside Properties are one of the UK’s biggest housing developers, and this move by the CMA has freed thousands of leaseholders from costly ground rents.
Countryside Properties have voluntarily given formal commitments to the CMA to scrap terms from leasehold contracts that cause ground rents to double.
The ground rent rises which are enforced every 10 to 15 years are controversial because people will often find it difficult to sell or remortgage their home. Another issue is that leaseholders’ property rights may be at risk if they fail to keep up with rent payments.
Following action by the CMA, Countryside will also scrap terms that were originally doubling clauses but were converted so that the ground rent rose in line with the Retail Prices Index (RPI).
The CMA has said the original terms were ‘potentially unfair and should therefore have been fully removed.’
Due to the CMA’s action, Countryside leaseholders will now see their ground rates remain at the original amount, essentially when the property was first sold and there will not be an increase over the years. Countryside has also told the CMA that it no longer sells leasehold properties with doubling ground rent clauses.
Andrea Coscelli, chief executive of the CMA, commented: “Leaseholders with Countryside can now breathe a sigh of relief knowing they will no longer be forced to pay these doubling ground rents. No one should feel like a prisoner in their home, trapped by terms that mean they can struggle to sell or mortgage their property. We will continue to robustly tackle developers and investors – as we have done over the past 2 years – to make sure that people aren’t taken advantage of.”
Coscelli continued: “Other developers, such as Taylor Wimpey, and freehold investors now have the opportunity to do the right thing by their leaseholders and remove these problematic clauses from their contracts. If they refuse, we stand ready to step in and take further action – through the courts if necessary.”
The CMA’s actions were well-received by the government, with the then Housing Secretary, Robert Jenrick, saying he welcomes ‘their continued success in bringing justice to homeowners.’
Jenrick added: “This settlement with Countryside will mean thousands more leaseholders are given the fair treatment they deserve and marks the third major agreement with leading UK developers and investors. I strongly urge others to follow suit and end these historic practices.”
Jenrick also assured leaseholders that the government will continue to offer support to any who may have been mis-sold properties. The now former Housing Secretary also said the new legislation will put an end to this practice for future homeowners, by limiting ground rents in new leases to zero.
The CMA says it is also going to investigate investment groups Brigante Properties, Abacus Land and Adriatic Land, following the watchdog writing to the firms earlier in the year, expressing its concerns and requiring them to remove doubling ground rent terms from their contracts.
Leasehold reforms – what are the government plans?
In December 2017, the year the leasehold scandal really came to public light, the government announced plans to tackle the increasing issue of newly built houses sold as leasehold rather than freehold and to limit ground rents on new lease agreements.
Leasehold reform was then included in the Law Commission’s 13th Programme of Law Reform to find ways to make buying a freehold or extending a lease ‘easier, faster, fairer and cheaper’.
It said future government legislation should:
- Reform enfranchisement valuation, which is used to calculate the cost of extending a lease or buying the freehold.
- Scrap marriage value.
- Cap the treatment of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value. An online calculator will be used to simplify and standardise the process of enfranchisement.
- Maintain existing discounts for improvements made by leaseholders and security of tenure.
- Bring in a separate valuation method for low-value properties.
- Grant leaseholders of flats and houses the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”.
- Allow for redevelopment breaks during the last 12 months of the original lease, or the last five years of each period of 90 years of the extension to continue, “subject to existing safeguards and compensation”.
- Allow leaseholders, where they already have a long lease, to buy out the ground rent without having to increase the lease term.
In May 2021, The Leasehold Reform (Ground Rent) Bill was introduced in the House of Lords and is set to fulfil the commitment to ‘set future ground rents to zero’. The provisions also apply to leasehold retirement properties, but not before 1 April 2023. The government says the Bill is the first part of a ‘seminal two-part reforming legislation in this Parliament.
Other measures the government said they will introduce will be making buying and selling a leasehold property less complicated with timeframes for agents and freeholders to respond to leasehold queries and maximum fees.
The government has also stated its intention to bring in standard mandatory forms for leasehold information, and plans to establish a Redress Reform Working Group.
What’s more, the government has pledged to respond to the remaining Law Commission recommendations, including commonhold, ‘in due course’.
A Written Ministerial Statement on January 11 2021 set out some of the changes the government has committed to introduce, including the abolition of marriage value and lifting restrictions on lease extensions.
Meanwhile, the Statement also announced the establishment of a Commonhold Council to prepare homeowners and the market for the widespread take-up of commonhold.
During the Leasehold Reform Bill’s first Committee Stage in the House of Lords, Lord Greenhalgh – the Minister of State for Building Safety and Fire – said the aim is to bring forward a bill on wider leasehold reform in the third session of this Parliament.
Here at Oakfield Estate Agents, we provide a full block management service in Eastbourne, Hastings and Bexhill and across Sussex and Kent for a large portfolio of properties. We also offer a comprehensive property management service for investors and have a team of letting agents offering letting services to landlords and buy-to-let investors.
We can help investors understand the implications and potential problems surrounding leasehold, but also the rewards when done in the right and proper way.
Whether you’re a freeholder looking to pass the day-to-day management of your investment to a managing agent or a director of a right to manage company looking for a managing agent, Oakfield Estate Agents are the agent for you.
We offer services to cover all aspects of Block and Estate Management and will tailor the services we offer to suit your individual requirements. You can talk to our block management team today.