Conveyancing update

‘Tackling unfair practices in the leasehold market’:
the Conveyancing Association responds

The consultation response includes what steps should be taken to limit the sale of new-build houses and tackle problems around the leasehold process. 

About the author
Beth Rudolf FCILEx is director of delivery at the Conveyancing Association.

To say that the issue of ‘leasehold’ has been something of a political and housing market ‘hot potato’ in recent months would clearly be a gross understatement. Indeed, long before the mainstream media got hold of the ‘leasehold scandal’, which has tended to focus on developers opting for leasehold on new-build properties plus escalating ground rents and other onerous terms and conditions, there have been significant ‘leasehold issues’ that have tended to go under the radar. Not at the Conveyancing Association (CA) though, I might add. The reform of leasehold, particularly in terms of the costs and delays added to the process by large numbers of Lease Administrators, has been something more than a large bugbear for us for a number of years. Indeed, a key part of last year’s white paper, and subsequent strategic plan to secure real improvements to the house purchase process, focused on leasehold reform, specifically in terms of producing a far better experience for all leaseholders– both existing and those looking to purchase.¹

Now, of course, with leasehold being a major focus for all stakeholders – not least the government – we have now finished the consultation process for the Department for Communities and Local Government’s paper, Tackling unfair practices in the leasehold market.² Perhaps, unsurprisingly, given the vociferous campaigning and the media headlines, much of the paper’s focus was on new-build leasehold and looking to reform the sector in order to stop any more of the stories we have all read about.

All very well and good – and we at the CA are very supportive of such reform – but in our response to the consultation we didn’t just want to focus on this area. It was important to us to look at leasehold reform in the round, not just newbuild leasehold; we wanted to provide potential solutions which might look to tackle the ills of the sector once and for all, and we were quite certain that this consultation paper represented the best opportunity in order do this.

Call to review commonhold

That being the case, a big focus of our response has been on the potential to use commonhold as a more than adequate replacement for leasehold. We want the government to review commonhold and its existing usage as a system of freehold tenure for multi-occupancy buildings, with a view to replacing leasehold with a working commonhold proposition.

We believe that the use of commonhold by developers could solve many of the problems which have been raised lately as a result of the increase in new-build leasehold houses, such as escalating ground rents, the sale of the freehold in order to make a substantial profit, and the rise in fees and premiums to leaseholders in order to allow them, for example, to extend leases and make alterations to the property.

In order to add weight to these proposals, the CA undertook a survey of the 175 commonholders in England in order to help to understand how they make it work, and the benefits and any potential issues that might arise. From the responses we received, it was clear that commonhold does work well and the vast majority are happy with the arrangement; in addition, commonholders who have also owned leasehold property said that they would choose

commonhold over it, which begs the question: why don’t we see more commonholders in this country? Again, the answer might lie in the fact that all those concerned with leasehold cannot make any money from such an undertaking, either by selling on the freehold to investment companies or in charging fees for what would be considered normal services. If you take out the ability to make significant sums of money, you are left with a situation where commonhold would be used more widely.

However, we are also acutely aware that the government might not deem commonhold to be the solution it wishes to utilise. If this is the case, then we argue in our consultation response that leasehold should only be applicable where there are genuine, shared amenities, and the term of the lease should be 999 years with a peppercorn ground rent. We also believe that all administration fees should be based on a reasonable fee tariff, plus leaseholders must have access to a redress scheme if the lease administrator attempts to charge unreasonable fees or does not respond within five working days of a request.

Reviewing the work of lease administrators

As mentioned, we have been lobbying for action to review the work of some lease administrators - who manage leases on behalf of the freehold - for a while. We have seen many examples where leaseholders had to pay extortionate amounts of money, in the form of fees, to sell their properties; in addition, they were subjected to severe delays, which meant that the sale of their leasehold property often took much longer than that of a corresponding freehold. We want to see an end to these delays and the rampant profiteering that has been taking place in this part of the market.

We do though recognise that the consultation would probably not be happening were it not for the new-build ‘leasehold scandal’, and clearly action needs to be taken here. Therefore, to discourage the sale of leasehold houses by developers, we are calling for any profits generated through ground rent or administrative charges to be placed in a reserve fund which would be put towards the maintenance of the shared amenities that have necessitated the leasehold.

We also want leaseholders to have a collective right of first refusal on the sale of the freehold. This would enable the leasehold owners to come together to buy the freehold and take over maintenance, with the premium calculated on a statutory formula based on the ground rent, which would be minimal.

Finally, we want to ensure that, on all marketing literature, it is stated clearly that the property is leasehold, and what this means on purchase and in the future.

Legal Sector Group’s leasehold reform proposals

Our overall consultation response also incorporates the CA’s recently published proposals for full leasehold reform, delivered as part of our membership of the Legal Sector Group (LSG) (see (2017) August CILExJ p5). The LSG comprises of the CA, the Chartered Institute of Legal Executives, Bold Legal Group and the Society of Licensed Conveyancers. We consulted widely on the new proposals, including with the Law Society, to produce a wide-ranging policy document designed to reduce the potential for abuse of leasehold, speed up the leasehold conveyancing process, increase certainty for consumers, and remove some of the unreasonable costs that can come with it.

These leasehold reform proposals were split into eight key areas, with specific policy initiatives for each.³

Conclusion

All in all, the proposals above are designed to ensure that we have a much fairer and transparent process in place, and that the money charged for various services is actually what it costs to deliver, not an arbitrary figure plucked out of the air in order to deliver as much profit as possible.

The current system has clearly been abused, which means that it is leasehold in its entirety which needs amending. In our opinion, the government must now set out an agenda for change that is all-encompassing ; if it does not, there is a danger that these practices will simply continue or, more likely, that those who have profited will begin charging more in other areas in order to make up for any shortfall.

In that sense, this is the perfect opportunity to deliver all the required change, and we - at the CA and as part of the LSG - will continue to work with the DCLG and all stakeholders to deliver what is required and to produce a system which has the needs of the leaseholder at its heart.

1 Fixing our broken housing market, available at: http://tinyurl.com/yafo7s2h
2 Available at: http://tinyurl.com/y9wdml2s
3 Available at: http://tinyurl.com/y8gjed7z