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On 28 June 2019 the Government released a response (‘the 2019 Response’) to the consultation paper dated 15 October 2018 published by the Ministry of Housing, Communities & Local Government as to how to tackle unfair practices in the leasehold market in England (‘the 2018 Consultation’).

Full copies of the October 2018 consultation paper and the Government’s 2019 response can be found at https://www.gov.uk/government/consultations/implementing-reforms-to-the-leasehold-system

To summarise the 2019 Response covered the following:

  • Bans on using leases for houses subject to limited exceptions
  • Reducing ground rents to a nominal level
  • Service Charge protection for freeholders
  • Dealing with management enquiries on sale of properties
  • Bans on using leases for houses subject to limited exceptions

Once in force the grant of new long leases of houses will be prohibited for any freehold land or any leasehold land acquired on or after 21 December 2017.

The Government have confirmed that there ought to be exceptions such as shared ownership properties, community-led housing, certain properties which cannot be sold or transferred such as National Trust properties and home reversion plans (equity release schemes) and home purchase plans (lifetime leases and Islamic/Sharia compliant finance) and agricultural tenancies.

  • Reducing ground rents to a nominal level

The 2018 Consultation proposed to cap ground rents in new long residential leases to £10 per annum, subject to certain exemptions including those detailed above where there is a genuine need to charge ground rent such as the rent being the only source of income or used to support other activities.

In the 2019 Response, the government confirms that it will instead legislate to restrict ground rents in future long residential leases to a peppercorn (zero financial value).

  • Service Charge protection for freeholders

The use of management companies in freehold developments is increasing as more developments include managed areas such as estate roads and communal areas.  The 2018 Consultation recognised that residential freeholders who pay an estate charge do not benefit from the same protections as leaseholders.

The response confirms that the government will legislate to give freeholders equivalent rights to challenge the reasonableness of estate rent charges.

  • Dealing with management enquiries on sale of properties

 The 2018 Consultation recognised the difficulty and expense in obtaining quality responses to landlord and management company enquiries from landlord’s and their managing agents which ultimately delay progress of conveyancing transactions.

Speaking from experience we have seen an extremely broad range of quality in responses to landlord / management company enquiries which also range in price from no charge whatsoever and to the most expensive at this firm being £850 plus VAT!

The government intend to set a maximum fee of £200 plus VAT for responding to the Law Society’s Leasehold Property Enquiries 1 (LPE1) and that leaseholders may challenge the reasonableness of the fee.

It is worth pointing out that there will not be any transitional period in respect of the ban on using leases for housing and the reduction to a peppercorn rent.

Exactly how these reforms will be enforced remains to be seen.  What is clear from the both the 2018 Consultation and the 2019 Response is that the Government will be putting the onus on developers and their solicitors to ensure compliance wit the legislation.  The 2019 Response stated that courts will have the power to impose a civil fine of up to £5000 per property on freeholders who charge ground rent in breach of the ‘zero value’ rent proposal.

What is also clear is that change is certainly coming to the residential leasehold sector and any developer of residential leasehold properties must carefully consider the proposals put forward by the Government in any future scheme to avoid any such problems being raised by plot purchasers and their professional advisors regardless of whether or when these reforms are enacted.

Jonathan Walker and his development team can provide expert guidance in all matters relating to commercial and residential property transactions covering all stages of the development from option agreements and acquisition, arranging security through to site set up and plot sales.  If you are a developer or have any queries whatsoever regarding conveyancing please contact Jonathan or a member of his team.

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