The Housing, Communities and Local Government Committee has published a report into Leasehold Reform which calls for wide ranging reforms to tackle abuse of the leasehold system.
The report states that leaseholders have been treated as a source of “steady profit” by developers and freeholders, rather than as homeowners or consumers, and calls on the Government to establish commonhold as the primary model of ownership of flats in England and Wales.
Leasehold reform campaigner Louie Burns, Managing Director of enfranchisement specialists the Leasehold Group of companies, said: “This report is welcome news indeed, as it proposes numerous recommendations that will improve the circumstances of leaseholders affected by the profound failures in the leasehold market.
“For years we have been calling for reforms that will limit ground rents, tackle unfair service charges and permission fees, outlaw the sale of leasehold houses and the mis-selling of leasehold properties, and address the systemic imbalances of power that have favoured freeholders’ interests for far too long.
“Freeholders have been arguing that their human rights will be affected if their contractual income streams are reduced. It is particularly encouraging that the select committee has supported leaseholders’ human rights to pay a lower premium to enfranchise and called on Government to remove onerous terms from existing leases.”
The report makes the following recommendations to Government:
- There is no reason why the majority of residential buildings could not be held in commonhold; the Government should establish commonhold as the primary model of ownership of flats.
- Due to “serious cross-market failure of oversight of sales practices”, the Competition and Markets Authority should investigate mis-selling in the leasehold sector and make recommendations for compensation.
- Developers should be prohibited from offering financial incentives to persuade customers to use a particular solicitor
- Some leading developers have in the past sought to use their market dominance to exploit their customers by the imposition of onerous ground rents. Ground rents should be limited to 0.1% of a property’s value, and never higher than £250 or linked to the rate of inflation (RPI).
- Ground rents on newly established leases to be set at a peppercorn (i.e. zero financial value).
- Many examples of permission fees are excessive and exploitative, and the Government should introduce legislation to restrict onerous permission fees in existing leases.
- The Government must legislate to require that freeholders’ tribunal costs can never be recovered through the service charge, or any other means, when the leaseholder has won the case.
- The Law Commission should recommend a process that will make enfranchisement substantially cheaper, even if that represents a transfer of power from freeholders to leaseholders.
- The term leasehold should be changed to “lease-rental”, which is a far better reflection of what consumers are actually buying into when the purchase a lease on a residential property.
The report also calls on the Government to implement a new consultation process for leaseholders affected by major works in privately-owned buildings and recommends that a threshold of £10,000 per leaseholder should be established, above which works should only proceed with the consent of a majority of leaseholders in the building.
Louie Burns continued: “The Government has already acknowledged that the leasehold system is not working in consumers’ best interests. We urge the Government to look at the committee’s very sensible recommendations and enact legislation that will end the exploitation of leaseholders and create a system that works for consumers.”