James Driscoll considers the leasehold and rented accommodation proposals in the government’s housing white paper, and finds them short on detail
“The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes.”
This dramatic opening statement illustrates that the main focus of the government’s long-awaited housing white paper consists of proposals to increase new housing by reforms to the planning system and changes to the role of local authorities and developers.
But for those who are interested in residential leases and the private rented sector, a number of ideas are floated in the paper.
Leasehold reform ahead?
The number of residential leasehold properties has increased dramatically, with more and more new homes being built in blocks of flats.
Estimates vary but it seems likely that upward of five million dwellings are now bought and sold on long leases – in respect of which many leaseholders complain of poor management, escalating service charges and badly drafted leases.
Despite the reforms introduced by Part 2 of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) many problems remain: the statutory right to manage has proved to be problematic; few are entirely happy with the statutory rights to challenge service and other charges; and the sanctions for non-compliance with the statutory consultation requirements may have been substantially eroded by the decision of the Supreme Court in Daejan Investments Ltd v Benson and others [2013] UKSC 14; [2013] 2 EGLR 45.
Last December, the All Party Parliamentary Group on Leasehold and Commonhold instigated a Commons debate on the problems with residential leaseholds. Many of the MPs who attended made wide-ranging criticisms.
It is possible, notes the white paper, that the Law Commission will include residential leasehold reform in its 13th programme of law reform.
Perhaps this is one of the reasons why the white paper is so light on detail on what is to be done with leasehold? It does not go much further than to say that government will act to promote fairness and transparency for the growing number of leaseholders.
Leasehold house sales
What, however, seems to have particularly exercised government thinking on leases is the small but growing practice of developers selling houses leasehold rather than on a freehold.
There are reports that some builders are selling newly built houses leasehold with rent review clauses, which in some cases can escalate the ground rent dramatically.
One wonders how many purchasers fully appreciate what they are buying? Of course, they may use a solicitor to advise on the conveyancing, but how many conveyancing solicitors are knowledgeable about residential leasehold law?
While it is true that a house leaseholder can later enfranchise (under the Leasehold Reform Act 1967), why should they be put to the expense of incurring legal and valuation fees after buying their home? The premium payable may be high if there are escalating rent provisions in the lease.
Of all the white paper’s critiques of the residential leasehold system, leasehold house sales (which probably only affects a limited number of house purchases) seems to have caused most concern.
The paper suggests that some purchasers are not aware at the point of sale that the associated costs of buying a new leasehold house can make it more expensive in the long run than buying a freehold house.
In many cases freeholds (with the ground rent income) of leasehold houses are sold on and traded, with, the white paper states, “leaseholders left in the dark, and facing increasing and onerous payments”. As it goes on to add: “This is not in consumers’ best interests.”
These comments led the government to warn that it is “absolutely determined” to address the problem.
Commonhold
For those who would prefer a more fundamental set of reforms, the reference to commonhold in the white paper will be welcomed.
It is, however, a very limited statement: “We will consider further reforms through the consultation to improve consumer choice and fairness in leasehold, and whether and how to reinvigorate commonhold.” Not exactly a ringing endorsement of commonhold, but it is probably the first positive policy statement about it in some time.
Of course, commonhold – introduced by Part I of the 2002 Act – has been available for many years, but it may need substantial revision and the introduction of incentives if it is to interest developers and funders.
Assured shorthold tenancies
The white paper also has suggestions for improving the position of private sector tenants.
These include measures to deal with bad landlords, such as extending the licensing of houses in multiple occupation to more dwellings.
It is thought that almost all private sector tenants now occupy under assured shorthold tenancies (“ASTs”).
Concerns continue to be expressed on the AST tenant’s relative lack of security (usually no more than six or 12 months), to say nothing of rapidly increasing rents.
While the white paper has much to say on building more homes and increasing the supply of rented accommodation, it has comparatively little to say about the position of AST tenants.
There is, however, a proposal that new AST tenants of some developers (housing associations and institutional investors) will have a minimum of three years’ security (subject to the tenant not being in breach of their tenancy terms). This will only apply to a few developments and presumably will require amendments to the AST provisions in the Housing Act 1988.
The future?
If the Law Commission decides to include residential leasehold (and possibly commonhold) in its next work programme, we may not hear much more for now from government.
It is likely, though, that there will be further announcement on selling houses leasehold and how this may be discouraged. Could the right of first refusal be extended to house leases?
Early implementation of the AST changes may come sooner if discussions reveal an appetite from developers to offer ASTs with greater rights.
James Driscoll is a solicitor and a consultant editor to Halsbury’s Laws of England
