Policymakers are being urged to adopt measures recommended by a Parliamentary committee to improve the residential leasehold property system as there is currently too much abuse.
The Housing, Communities and Local Government Committee report into leasehold reform states that leaseholders have been treated as a source of ‘steady profit’ by developers and freeholders, rather than as home owners or consumers.
It calls on the Government to establish commonhold as the primary model of ownership of flats in England and Wales and the industry also wants to see change. According to the Council for Licensed Conveyancers people should be able to make an informed choice as to who they use.
It points out that conveyancers have an essential role in explaining to the potential purchaser the implications of any enquiries with regards to anything that was revealed in the searches, contract and title documentation provided by the seller’s conveyancer and this must include clauses in a leasehold agreement.
According to leasehold reform campaigner Louie Burns, managing director of enfranchisement specialists the Leasehold Group of companies, the recommendations will improve the circumstances of leaseholders affected by what he described as ‘profound failures’ in the leasehold market.
‘For years we have been calling for reforms that will limit ground rents, tackle unfair service charges and permission fees, outlaw the sale of leasehold houses and the mis-selling of leasehold properties, and address the systemic imbalances of power that have favoured freeholders’ interests for far too long,’ he said.
‘Freeholders have been arguing that their human rights will be affected if their contractual income streams are reduced. It is particularly encouraging that the select committee has supported leaseholders’ human rights to pay a lower premium to enfranchise and called on Government to remove onerous terms from existing leases,’ he added.
The report also calls for Competition and Markets Authority to investigate mis-selling in the leasehold sector and make recommendations for compensation and says that developers should be prohibited from offering financial incentives to persuade customers to use a particular solicitor.
Some leading developers have in the past sought to use their market dominance to exploit their customers by the imposition of onerous ground rents so it suggests that ground rents should be limited to 0.1% of a property’s value, and never higher than £250 or linked to the rate of inflation (RPI).
It also says that ground rents on newly established leases to should be set at a zero financial value and that there should be legislation to make sure that freeholders’ tribunal costs can never be recovered through the service charge, or any other means, when the leaseholder has won the case.
Another recommendation is that the term leasehold should be changed to lease-rental, which it says is a far better reflection of what consumers are actually buying into when the purchase a lease on a residential property.
‘The Government has already acknowledged that the leasehold system is not working in consumers’ best interests. We urge the Government to look at the committee’s very sensible recommendations and enact legislation that will end the exploitation of leaseholders and create a system that works for consumers,’ Burns concluded.
