Do Leasehold Reforms Go Far Enough?

Angela Rayner called for stronger measures to control the management of leasehold properties when speaking to MPs on the Commons Housing Committee last week, but will the reforms go far enough. 

 

Leaseholders have had it hard. So many have been affected by defective building design, particularly due to cladding issues, identified following the Grenfell tragedy. 

 

This has cost leaseholders vast amounts of money, not just in paying for repairs but also due to the additional expenses incurred due to not being able to sell their properties. 

 

Statutory changes are coming, one way or another, but will they go far enough. Time will tell. 

 

Ground rents and service charges have also made headlines, with further changes proposed. 

 

However, the reason that these changes have been so delayed is in large part due to a great deal of push-back from those who will be adversely affected by the changes – the landlords. 

 

The reporting of their concerns are unlikely to get the same number of views, clicks and likes in various media, but the rather one-sided narrative does leave something of a void in understanding. 

 

There are some things that should simply not be allowed. Landlords exploiting leaseholders by taking cuts of their insurance payment contributions is a clear and obvious one and surely something that the legislation will eventually address. 

 

However, there are other issues that are more nuanced. Grounds rents, for example, have been described by Lord Gove as ‘simply extortion’. 

 

Whilst one can quite see why it is desirable to ban future ground rents, after all, they serve no purpose other than to line pockets, changing the terms of existing ground rents begs more careful examination. 

 

Private landlord, institutional landlords and pensions funds have all invested as they have on the basis of future ground rent income. Indeed whole businesses have been set up to ‘buy out’ freeholds for that very reason. 

 

What seems never to have been discussed, however, is a point of principle in terms of how leaseholders found themselves in this position. 

 

Ground rents payable under leases are not secret. A buyer knows (or should know) what they are signing up for. Those buyers had a choice – they did not have to buy the flat, and having done so, why should it not be paid? 

 

There are exceptions to this. For example if their lawyers didn’t explain an escalating or unusually calculated ground rent properly (thousands of lawyers have been sued for just that). 

 

Angela Rayner’s comments also give the impression that the leasehold service regime is a free-for-all, with landlords able to charge extortionate amounts, with an inference that they can profit from doing so. 

 

This disregards the very tight legislative regulation that is already in place under ‘s.20 rules’ under the Landlord and Tenant Act 1985. This means that if major works, which give rise to most disputes about service charges, cost more than £250 per leaseholder or a long-term contract costs more than £100 per leaseholder, then a detailed consultation process has to be followed. Leaseholders can question or make representations about whether the works are necessary, give an opportunity for contractors to be suggested and make representations about the final sum agreed for these works. Not following the process has very serious consequences for a landlord as they may not be able to claim the majority of the costs back. 

 

The s.20 Procedure is long established and has saved thousands of leaseholders from unnecessary works and exorbitant costs. Landlords are not free to do what they wish. The works have to be necessary so that the landlord complies with their lease obligations and costs are accountable. 

 

All this said, improvements should be made to leasehold management. 

 

The s.20 procedure works best when organised by managing agents who are professional and really know what they are doing. 

 

A form of regulation or mandatory professional qualifications seems overdue, given how many leaseholders can be affected by poor management, even if it isn’t deliberate profiteering by a landlord. 

 

On the sale of a leasehold property, a landlord or managing agent of a building is required to provide a ‘management pack’, usually on a standard form LPE1. 

 

There is no cost cap for the provision of this service, nor is there any requirement for the information to be provided within a given time limit. Furthermore, the landlord has no accountability for if, how and when they reply to any follow-up questions whilst a property is being sold, not whether they can charge more for follow-up questions. 

 

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