Government response to consultation on implementing reforms to the residential leasehold system

In December 2017, the Government announced it would tackle unfair practices in the leasehold market by introducing legislation to prohibit new residential long leases from being granted on houses (other than in exceptional circumstances), and to restrict ground rents in newly-established leases of houses and flats to a nominal amount.

Between 15 October and 26 November 2018, the Government consulted on how to implement those reforms to the leasehold system in England, and to improve the housing market for consumers.

That consultation received over 1,200 replies, and on 27 June 2019, MHCLG published its consultation outcome on implementing reforms to the leasehold system.

 

Headline points

The intended measures to be implemented include the following:

  • All new houses to be sold on a freehold basis, with exemptions for exceptional circumstances;

  • Ground rents to be restricted to a peppercorn in future leases;

  • Freeholders on private and mixed tenure estates will be able to challenge the reasonableness of estate rent charges and can apply to the First Tier Tribunal to appoint a new manager;

  • Freeholders must provide leasehold information within 15 days when a home is being sold, and the maximum fee for providing such information will be capped at £200 (plus VAT).

 

Leasehold houses

Legislation will be introduced banning the sale of new houses on a leasehold basis. There will be exceptions to this, but those exceptions are limited.

Following the introduction of the new legislation, it will not be permissible for applicants to apply to register a non-compliant residential long lease on a house with HM Land Registry.

If a lease is found to be contrary to the ban, the purchaser will be entitled to zero cost enfranchisement as a means of redress.

 

Ground rents

Legislation will be introduced to restrict ground rents to a peppercorn in future leases. It had been proposed in the consultation to cap these at £10 per annum. However, Government has now indicated their intention to legislate to restrict future ground rents to a peppercorn.

There will be no transitional period after the legislation comes into force, with comment being made in the response that “… by the time the legislation comes into force our proposals will have been in the public domain long enough for the sector to prepare for the changes”.

Government also intends to give leaseholders the right to apply to the First Tier Tribunal to seek a refund for any incorrectly paid ground rent and any associated costs, with no time limitations.

Power will also be given to the courts to impose a civil fine on freeholders who have set ground rents contrary to the forthcoming legislation.

 

Estate rent charges

Government will legislation to give freeholders on private and mixed tenure estates equivalent rights to leaseholders which will enable them to challenge the reasonableness of estate rent charges.

They will also be able to apply to the First Tier Tribunal to appoint a manager to manage the provisional services covered by the estate rent charges. This essentially replicates section 24 of the Landlord and Tenant Act 1987.

Interestingly, Government will also consider introducing a right to manage for residential freeholders once the Law Commission has reported on this issue.

 

Improving how leasehold properties are sold

Legislation will be introduced to ensure that information provided to a prospective buyer will be turned around in no more than 15 working days.

In addition, a maximum fee of £200 plus VAT for producing leasehold information in the form of the LPE1 pack will be set.

MHCLG have been clear in their response that this is a cap, and that they expect freeholders and their managing agents to charge a fee which reflects the reasonable cost of providing this information below the cap.

 

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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