Consultation: Implementing reforms to the leasehold system in England

The Government is seeking views on how to implement the reforms announced in December 2017.

  • Submitted 31 October 2018
  • Applicable Law UK
  • Topic Real Estate

Overview

Following the Government’s announcement in December 2017 that it intended to:

  • ban leaseholds for almost all new build houses
  • make changes so that ground rents on new long leases were set to zero, and
  • generally improve the leasehold experience for the consumer,

the Government has now issued a consultation on how to implement these reforms. Specifically, the consultation is seeking views on how to implement: 

  • a ban on the unjustified use of leasehold for new houses
  • the reduction of future ground rents to a nominal value
  • measures to ensure that the charges that freeholders must pay towards the maintenance of communal areas are fairer and more transparent, and
  • measures to improve how leasehold properties are sold.

The consultation notes that “Where aspects of the December announcement, including the commitment to legislate to address loopholes in legislation to protect leaseholders and freeholders, are not referenced in this document, we are able to take the action we need outside of the consultation”.

James Brokenshire, Secretary of State for Housing, Communities and Local Government has stated that he “will introduce new legislation, when Parliamentary time allows, making the leasehold system in England fairer and more transparent”.

The detail

In relation to the proposed ban on new residential long leases being granted, whether for new build or existing freeholds, some points of note are set out below.

  • The consultation proposes that the mechanism for “prohibiting unjustified new residential long leases from being granted on houses will be based around how land and houses are registered”. The suggestion is that it would not be permissible to apply to register a transaction which was in breach of the legislation and that if, for example, “a new residential long lease is incorrectly granted on a house, the homeowner should be able to cancel the lease and have the freehold title transferred to them at the earliest possible opportunity, and with the minimum of cost and disruption to them”. Views are invited on further practical measures to enable the ban to be enforced and appropriate redress for home owners.

  • The proposal is that a workable definition of ‘house’ will be introduced and the consultation is clear the Government wishes to avoid loopholes. Views are invited on “the type of arrangements and structures which should or should not be considered to be a 'house' for the purpose of the ban on new leasehold houses”.

  • Exemptions are being considered for shared ownership properties, community-led housing (such as Community Land Trusts, cooperatives and cohousing schemes) and inalienable National Trust land and excepted sites on Crown land. With the exception of community-led housing, it is not proposed that these types of development should automatically be exempt from the nominal future ground rent proposals. Views are invited on whether there should be further exemptions and also whether there should be changes to the legislation dealing with estate management schemes.

  • The consultation proposes a retrospective application of the ban on leasehold houses:

'Subject to any exemptions, following our proposed legislation coming into force, the ban on the granting of long leases for houses will apply to:

    1. any land held as freehold at any time, and
    2. any leasehold land acquired from 22 December 2017 onwards.

The consultation also proposes that the ban “will apply to assignments of leasehold land once the legislation is in force if a house or houses have been developed on that land after the legislation comes into force”.

  • It is proposed that the date of the grant of the lease is the key date for the purposes of the ban.

In relation to the proposal to reduce future ground rents to a nominal value, the Government notes that “our engagement thus far has not persuaded us to depart from the principle that payment of economic ground rents by leaseholders does not provide them with any material benefit in return”. The proposal is therefore to cap ground rents at £10 per annum. Exemptions are being looked at in relation to shared ownership, community-led housing, retirement properties and mixed-use long commercial leases. Arguments were made for a three- to five-year implementation period for this policy. However, the consultation notes that the intention to restrict ground rents was first made known in December 2017 and it is unlikely that the legislation will be in force until mid-2020 at the earliest. It is therefore proposed that the ban will come into effect three months after commencement of the proposed Act.

The consultation also states that the intention is to “create a regime for freeholders which provides that maintenance charges must be reasonably incurred and that services provided are of a reasonable standard”. It is proposed that the regime will be based on the protections available for residential leaseholders who pay a service charge. The consultation is specifically seeking views on whether freeholders should be provided with a right to change the management of the services covered by an estate rent charge or contained within a deed of covenant arrangement. The consultation is also seeking views on the impact of these proposals on companies or bodies that provide the long term management of communal areas and facilities.

The final area being consulted on is the proposal to implement changes to improve how leasehold properties are sold. The Government has set out a commitment to specify fixed time frames and maximum fees for the provision of leasehold information. The consultation seeks views on the level of such fees and the deadline for the provision of information.

The proposals relate to England only and the consultation closes on 26 November 2018.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.