Opinion - leasehold reform should be top of Michael Gove’s 'to-do’ list

Housebuilder Countryside Properties has become the latest big developer to pledge an end to ground rents on leasehold properties, meaning that thousands of leaseholders who bought homes from them will no longer be subjected to the rents that double every 10 or 15 years.

Countryside is clearly doing the right thing by scrapping leasehold ground rents, albeit having been motivated to do so following the investigation by the Competition and Markets Authority (CMA).

Entering into a leasehold has a number of benefits for homeowners, but for millions it has become almost impossible to sell on their property, and the level of the ground rents become punitive the longer they remain in the property.

CMA investigation

The original investigation by the CMA was launched into leaseholds in 2019 because there was concern about the huge and unexpected increases in the cost of buying a freehold, as well as the ground rents issue.

Countryside was one of four housing developers subject to enforcement action in September 2020, alongside Taylor Wimpey, for using "possibly unfair contract terms". At the same time Barratt Developments and Persimmon Homes were investigated over the possible mis-selling of leasehold homes. The investigation into Taylor Wimpey and Barratt Developments is ongoing, nevertheless, Countryside’s decision is another step in the right direction.

Speaking publicly about the decision, Iain McPherson, chief executive of Countryside, said they had engaged extensively and constructively with the CMA to reach, ‘this positive outcome for affected leaseholders.’

It’s a move that has also been welcomed by Andrea Coscelli, chief executive of the CMA. Speaking in the media in September, following the announcement by Countryside, he said leaseholders could breathe a "sigh of relief".

He added that ‘no-one should feel like a prisoner in their home, trapped by terms that mean they can struggle to sell or mortgage their property’.

Katie Kendrick, founder of the National Leasehold Campaign (NLC), also said that the changes would help people, telling the media that it means leaseholders can ‘escape onerous ground rents that make their homes unmortgageable and unsellable’.

Delays to reforms

At Cavendish Legal Group we hope that it will encourage even more large housebuilders to do the same, because the fact is leaseholders are in a state of limbo right now.

Leaseholders have been waiting months and months for the government to move forward with the reforms announced in January, and in the meantime find it much more difficult to sell their property whilst the shadow of ground rents looms over them.

We also fervently hope that Michael Gove, in his new role as housing secretary, can move things along with a lot more urgency than his predecessor Robert Jenrick.

There is no good reason why homeowners should be paying ground rents in 2021 and developers and landlords across the country should be doing the right thing by enabling leaseholders to feel truly secure in their own homes.

However, the concern is that Mr Gove is going to have a very busy ‘to do’ list in the first few months in his new job.

Due to the complete lack of progress by his predecessor, it’s likely that Gove is going to be tasked with multiple priorities not just relating to leasehold reform, but also planning reform, cladding and building safety issues.

The Building Safety Bill currently going through Parliament is set to have a significant impact on the sector when it becomes law, and hitting the government target of 300,000 new affordable homes a year is starting to look out of reach.

Add to this his brief to head up the ‘levelling up’ agenda in the re-branded Department for Levelling Up, Housing and Communities, and you begin to wonder whether the voice of the beleaguered leaseholder is going to have any cut through.

Meanwhile, existing leaseholders with a short term left on their lease which they are looking to extend, now have a real dilemma on their hands. If they delay and wait for the proposed reforms to be introduced the benefits could include a much cheaper premium and extended lease time.

However, if for any reason the reforms don’t happen, (and we still wait to hear what the timeframe is from the government) then they could be faced with a hefty bill of potentially tens of thousands of pounds and a lease that is ticking down in years.

The simple fact is, the longer they wait to extend, the shorter their lease becomes, resulting in a rising cost to extend their leases. And a property that becomes undesirable in the open market.

What leaseholders can do today

While it is a welcome move by the likes of Countryside, there are currently thousands of existing leaseholders who are feeling trapped by escalating ground rents and unsellable homes.

They deserve clarity and a timeframe for reform, along with a clear commitment from the government on when they will be implementing the changes announced in January.

For homeowners in this position, they can do one of two things; either buy out the freehold entirely – whether it be their leasehold flat or house, in which case they become their own landlord.  Or they can extend the lease by an additional 90 years and reduce the ground rent to a peppercorn, which will be zero.

In order to extend your lease, you have to be the registered owner for at least two years. This is one of the biggest hurdles for new owners which unfortunately still remains in the government’s proposed changes. But you don’t have to be living in the property, so it could be a rental property.

The starting point is to have a valuation done by a professional valuer, as you would any property transaction. This would determine the premium payable. That report will give a value range for what they believe the ground rent to be worth.

We at CLG (now part of the O’Neill Patient Group of Solicitors) work with specialist valuers in this field and can deal with the entire process from beginning to end, making the transaction as hassle free as possible.

The next stage is to propose the price you wish to pay based on your valuer’s report to the landlord. They then have two months to respond with a counter offer. Once their offer has been made it’s really then a negotiation between the two valuers and legal representatives for the landlord and leaseholder.

Get the right advice

So while that is an option available now, I think what the last few months of uncertainty and delays has really underlined quite clearly, is the importance of getting the right advice from specialists in the area, as it’s not an everyday conveyancing case.

We certainly hope that is advice Mr Gove will also follow.