Originally published in Society Matters magazine summer 2019 edition
By Eddie Hughes MP
There is growing concern in Parliament, on all sides of the House, about leasehold properties. Recently the MHCLG Select Committee held an inquiry into leasehold reform and published a number of very sensible suggestions: looking at ‘commonhold’ ownership models and getting the Competition and Markets Authority to investigate mis-selling in the leasehold sector are but some of the recommendations.
However, one problem needs addressing urgently and that is the ‘leasehold ground rent scandal’. In many cases, developers have created leases with ground rent clauses that have since fallen out of favour with lenders. In some cases the ground rent doubles every ten years, in other cases it increases just once, and there are reports of lenders refusing to lend on what they deem as unreasonable clauses. The result is an unsaleable property and in many cases, the developer is long gone, having sold the freehold on to investment companies.
The result is that some freeholders are remote, uninterested in helping out their leaseholders or those that do are charging unfair fees and legal costs for what should be a very simple solution. However, there is currently no onus on the freeholder to help sort the problem out, except out of good will.
It cannot be right that in 2019 we have leasehold properties unable to be sold because of ground rent clauses. Behind each problem is a person; families, couples and small investors. They do not deserve to be forgotten about and left high and dry, trapped indefinitely with their property.
So what can be done?
In the case of apartments, currently, the law allows 50% of leaseholders to get together to buy the freehold. Quite a task and a long and expensive process if you just want to sell your property. Leaseholders could try and extend the lease but again there is an elongated process with expenses running into the thousands of pounds.
There’s also the possibility the leaseholder negotiates a ‘variation of lease’ with the freeholder. This is also costly and there is no onus on the freeholder to do a deal. It is, however, probably the simplest solution but with prohibitive expenses and no obligation on freeholders to engage, we have a postcode lottery of failures and successes.
Systems and institutions are supposed to serve the public and I hope we can all agree that we can’t have people unable to sell their properties. Drastic and immediate action is required.
That’s why I am currently putting together a Private Member’s Bill that would create a legal obligation for freeholders to grant a quick and simple lease variation to leaseholders, in such a position with their ground rent, with ground rents capped at 0.1% of the property value. I’m also considering including an obligation for the original developer to foot the legal bills for the leaseholder in such a situation. Afterall, why should families have to find huge sums just to solve a problem, not of their making?
I believe there is a wide cross-party consensus in Parliament on this issue and the time is fast approaching when Parliament will need to intervene and change the law to restore fairness in this sector.
In the meantime, let’s hope freeholders and developers step up and take the initiative.
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