The Housing, Communities and Local Government Committee of the House of Commons has concluded an inquiry into the unfair practices of the leasehold market. The result is a lengthy report addressing the issues leaseholders face, considering the potential need for reforms and/or interventions. The report does make some recommendations to the Government, the Law Commission and the Competition and Markets Authority, and those entities have two months to respond. The key areas for concern are as follows:
Ground rents
There have long been concerns about ground rents for leasehold properties. They are service charges for the maintenance and improvement of common areas, and they are frequently amped up. Clauses that mean ground rent doubles every 10 years can be particularly difficult since they can become unaffordable for the leaseholder and render the property unmortgageable.
The report suggests the introduction of legislation to tackle existing unfair ground rents and capping them at £250 per annum. The committee’s findings allege that ground rent is an exploitative assertion of market dominance by developers, who fail to provide an adequate level of maintenance or service to justify the charges. In many cases, freeholders neglect entirely their responsibility to maintain or improve common areas, despite collecting ground rents from every leaseholder.
Other important findings
Another finding revolves around unregulated and uncapped fees charged to leaseholders in order to obtain information when selling. These charges are entirely in the hands of the freeholder, and can add substantial cost to the process of selling that is difficult to predict, since the charges vary from one property to the next. Furthermore, when a leaseholder wants to sell, they will frequently be required to have the lease extended at their own expense since potential buyers’ mortgage companies will insist on leases being lengthened for their own security.
One key recommendation from the report is that leaseholders on private and mixed-use estates are given the right to submit a challenge against the reasonableness of ground rent buying charges. The recommendations also state that freeholders should be obliged to provide leasehold information within 15 days when a property is being sold, with a maximum fee of £200 plus VAT for this service.
When will we see change?
The report is recommendation-only at this stage, and the Government is considering the findings. However, the report gives a strong indication of the necessary changes, and it offers tremendous clarity in its findings. Legislation on ground rents is likely to be passed, due to public interest in this area, so expect to see new developments in the coming months.
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