Leasehold and ground rents might be scrapped under new recommendations

Leasehold homeowners held in unsellable properties have recently been offered some respite, with a new select committee report with an overhaul of the entire leasehold system.

The Housing, Communities and native Government (HCLG) committee has this morning released a damning report into leasehold housing, specifically concentrating on the issues facing existing leaseholders who've found themselves living in unsellable and unmortgageable homes.

The committee says developers, freeholders and managing agents have been treating homeowners like a ‘source of steady profit’, and it has encouraged what the law states Commission to research mis-selling of homes with punitive ground rent clauses and make strategies for compensating existing leaseholders.

It has also required the widespread introduction of a commonhold system – where owners of flats have equal shares of the freehold and manage it together – to exchange the present leasehold system in England and Wales.

Here, we measure the report’s key findings and explain the largest issues facing leasehold homeowners.

HCLG committee issues damning leasehold report

The select committee, which consists of a range of MPs, says the government must do the next:

The committee also states that your competition and Markets Authority (CMA) should investigate mis-selling claims, and that what the law states Commission should outline a process that can make purchasing the freehold of a property substantially cheaper.

Which? has been the main thing on reporting on issues facing leaseholders, and submitted a proper reaction to the HCLG committee’s demand evidence.

Leasehold: the large issues

Last July, Which? conducted probably the most substantial investigation of its kind into problems with leasehold homes, and uncovered a variety of problems that left homeowners stuck with unsellable properties. These included:

Until now, the federal government has primarily focused on preventing new-build houses for sale as leasehold later on (traditionally, only flats were sold as leasehold). While it has made some broad promises about making the process of buying a freehold easier, it has to date offered no clear approach to redress for existing leaseholders.

Now though, the HCLG committee has place the ball firmly within the government’s court, with its report requiring a proper response within two months.

Make commonhold the ‘primary type of ownership’

The committee says there is no reason why nearly all residential flats can’t take place in ‘commonhold’ instead of leasehold tenure.

Commonhold involves each individual inside a block of flats having a share of the freehold and handling the repair off the building themselves by establishing a management committee.

The report says this type of ownership will be a positive move as commonhold properties have the freedom from ground rents and lease extensions. Additionally, it states that there isn't any proof that professional freeholders currently provide a better service than leaseholders could provide themselves.

Scrapping punitive ground rent clauses

The report states that developers have ‘sought to make use of their market dominance to exploit customers’ by hitting them with onerous ground rent doubling clauses.

Developers deny claims of mis-selling, however the committee says the ‘quantity of near-identical stories from leaseholders reflects a significant cross-market failure of oversight of sales practices’.

The report then recommends the CMA investigates mis-selling and makes recommendations for compensation to existing leaseholders.

The table below from your investigation in to the leasehold scandal shows only one example received through which? of how doubling ground rent clauses could make leasehold properties unsellable.

Leasehold reform: what’s next?

While the HCLG committee is forthright in the claims that the leasehold system requires a significant overhaul, it remains to be seen if and when this can arrived at fruition.

The report’s claim that it might be ‘legally possible’ introducing legislation to remove onerous ground rent clauses puts pressure around the government to act, but it does provide the caveat that ‘freeholders would probably have to be compensated’. Because of so many affected parties, the entire process of introducing legislation is quite complicated.

As it stands, the federal government, CMA and Law Commission have 8 weeks to respond to the report’s recommendations.