Following the consultation which took place last year, the Government has revealed its proposals to remedy the issues which surround the residential leasehold market.
The Government has split its proposals into four main categories:
- A ban on new long leases
In December 2017 the Government declared a ban on any new long leases for houses – unless it fell into one of the listed exceptions e.g. shared ownership properties, community-led housing, or retirement properties, etc.
The ban appears to have already reduced the number of new leases for houses. However, the Government has confirmed that there will be no flexibility once the legislation is in place.
The responsibility will remain primarily with the developer and if it is then later discovered that they have failed to comply, owners of these properties will have the right to upgrade their ownership to freehold status with no further cost to them.
The Government may impose additional penalties to enforce the ban.
- Unfair ground rent clauses in leases
During the Government consultation, it was recommended that rent for residential leases be capped at £10 per annum. However, the recent proposals reveal that the Government wants to go further and completely remove any financial benefit by ensuring that future clauses are restricted to a peppercorn rent, this also applies to shared ownership properties. A peppercorn rent means in practice that no rent is payable.
- Protection for freehold owners against service charge provisions
The law provides some protection for leasehold owners against management companies but when it comes to freehold owners the same protection is not available.
The Government’s new proposals aim to address this gap in the law by creating rights that mirror those already available for leaseholder owners particularly with regard to having the right to challenge service charges.
- Improving the Management Pack Process
At present a management pack is required to sell a property that is either a flat or a freehold property requiring communal maintenance. These packs are expensive and delay the conveyancing process.
Although most companies do adopt the standard use of the LPE1 document more can be done. The absence of guidance for costing and timing can cause substantial delays during a transaction.
The proposals will attempt to regulate the costs as well as confirming the time periods in which the packs will need to be produced.
What is the difference between Freehold and Leasehold?
There are two forms of legal property ownership in England and Wales – Freehold, and Leasehold.
Freehold means you own the entire house including the land. You also own above and below your house and land meaning you can apply for planning permission to extend up, down, or out.
A leasehold means you have the right to occupy the space for a period of time. Unlike a freeholder, you do not own the building or the land the property is built on. As a leaseholder you essentially pay rent to the freeholder to occupy the space for several years, traditionally 99 years plus.
What is an LPE1 form?
An LPE1 is a Leasehold Property Enquiries form. It is used to gain and retain information held by the landlords (freeholders) management company and agent. It will include information regarding ground rent, insurance, and service charges.
The Government appears to have made clear commitments to resolving these issues, particularly in relation to new leases on houses. However, it is uncertain whether the implementation will be a success. At Attwells we favour these changes which should help to simplify and reduce cost in the conveyancing process and make the owning of leasehold property fairer.
If you would like more information regarding a leasehold agreement, conveyancing, or any other element of property law please call Duygu Karatay on 01473 229200 or click on the links within this article.