The Conveyancing Association (CA) has issued its full response to the Department for Communities and Local Government’s consultation paper, ‘Tackling unfair practises in the leasehold market’.
The response sets out in full the CA’s answers to the consultation’s questions principally outlining what steps the government should take to limit the sale of new-build houses but also to tackle some of the problems around the leasehold process in general.
The CA is urging the government to look at reviewing commonhold and its existing usage as a system of freehold tenure for multi-occupancy buildings, with a view to replacing leasehold with a working commonhold proposition.
The CA believes that the use of commonhold by developers could solve many of the problems that have been raised recently as a result of the increase in new-build leasehold houses – such as escalating ground rents, the sale of the freehold in order to make a substantial profit, and the rise in fees and premiums to leaseholders in order to allow them to, for example, extend leases and make alterations to the property.
If commonhold is not deemed to be the solution then the CA argues that leasehold should only be applicable where there are genuine shared amenities and the term of the lease should be 999 years with a peppercorn ground rent. It also argues that all administration fees should be based on a reasonable fee tariff plus leaseholders must have access to a redress scheme if the Lease Administrator attempts to charge unreasonable fees or does not respond within five working days of a request.
The CA has been lobbying for action to review the work of some Lease Administrators – who manage leases on behalf of the freehold – with many leaseholders being forced to pay extortionate amounts of money in the form of fees in order to sell their properties, plus being subjected to severe delays which mean that the sale of leasehold properties often takes much longer than that of a freehold – on average 20 days longer. The CA wants to see an end to these delays and the rampant profiteering that has been taking place in this part of the market.
The CA argues that, if leasehold is to be retained, then sales of leasehold houses by developers should be actively discouraged by ensuring any profits generated through ground rent or administrative charges are to be placed in a reserve fund which would be put towards the maintenance of the shared amenities which have necessitated the leasehold. It also wants leaseholders to have a collective right of first refusal on the sale of the freehold, enabling the leasehold owners to come together to buy the freehold and take over maintenance, with the premium calculated on a statutory formula based on the ground rent, which would be minimal. Finally, it wants to ensure that, on all marketing literature, it is clearly stated that the property is leasehold and what this means on purchase and in the future.
The response also incorporates the CA’s recently published proposals for full leasehold reform, delivered as part of its membership of the Legal Sector Group (LSG). The LSG is comprised of the CA, the Chartered Institute of Legal Executives (CILEx), Bold Legal Group (BLG) and The Society of Licensed Conveyancers (SLC).
The LSG consulted widely on the new proposals, including with The Law Society, and produced a wide-ranging policy document designed to reduce the potential for abuse of leasehold, speed up the leasehold conveyancing process, increase certainty for consumers and remove some of the unreasonable costs that can come with it.
Beth Rudolf, director of delivery at The Conveyancing Association, said: “We have spent a considerable amount of time over the summer talking to our membership and liaising with our colleagues and stakeholders, before putting our response to the leasehold consultation together. It was important to us that we presented tangible solutions not just to the problem of new-build leasehold, but also to the other issues within the leasehold process which have caused much consternation and concern particularly on the part of leaseholders in their dealings with their Lease Administrators.
“Much of our focus has been on whether commonhold could provide a real alternative to leasehold and following research, and a survey of the 175 commonholders in England, it was clear to us that it works well and the vast majority are happy with their arrangement. Plus, those that have also owned leasehold property said they would choose commonhold over it.
“Some refer to commonhold as a ‘failed tenure’ when in fact academics in a recent review could only come up with half a dozen technical flaws. The real reason commonhold is yet to take off is because of home builders and lenders. As was stated at the recent All Party Parliamentary Group for Leasehold Reform meeting, commonhold could only come in if there was a ban on creating value out of leasehold. Why would any builder, mindful of their profit line, choose to give up the asset value created by leasehold? Unless you are a business that specifically sets out to create affordable housing.
“That said, we’re aware that the government may not opt for this solution and, that being the case, we wanted to spell out the red lines that need to be drawn to ensure that no leaseholder is left in the situation that many people find themselves in, and which have hit the headlines in recent months. That means defining when leasehold can be used, minimum lease terms, peppercorn ground rents, reasonable fees, and access to a redress scheme, amongst others.
“These proposals are all designed to ensure we have a much fairer and transparent process in place, and that the money charged for various services is actually what it costs to deliver, not an arbitrary figure plucked out of the air in order to deliver as much profit as possible. The current system has clearly been abused which means that it is leasehold in its entirety that needs amending. We will continue to work with the DCLG to deliver what is required and to produce a system that has the needs of the leaseholder at its heart.”