The Government needs to tackle the Leasehold problem

The Government has acknowledged that the leasehold system is not working in the best interests of consumers and needs to be reformed.

What is leasehold?

When buying a property you can buy a leasehold or a freehold. A freehold is owning the building and the land it is built upon.

A freehold is more similar to a rental agreement where the leaseholder pays the freeholder to own the property for a period of time, commonly between 99 and 125 years.

There are over 4 million leasehold properties in the UK, making this an issue that really matters to the house buyers.

Why is leasehold a problem?

Some leaseholds can have problematic ground rent terms, rules imposed on the leaseholder by the freeholder, such as;

• ground rent doubling every 10 - 15 years
• ​unreasonably high service charges
• restrictions on renovations made to the building

If these terms are breached freeholders can lose their property.

​Campaigners have also argued that purchasers are being charged unreasonable costs to extend their leases and in some instances consumers have been mis-sold leaseholds when there were freehold options available.

What is the Government doing?

​The Government have promised to tackle the unfair practices in the leasehold market and help existing leaseholders by making is easier and fairer to extend an existing lease.

We, MPs on the Housing, Communities and Local Government Select Committee, have been looking into the Leasehold market and how effectively the Government is tackling the problems.

Over 700 people told us their experiences

We asked for written stories and other evidence to help with our inquiry and had over 700 people telling us about their experiences from both leaseholders and landlord freeholders.

We also invited a group of leaseholders from across the country to come to Parliament and tell us in person about their experiences of the leaseholder experience.

Too often, leaseholders—particularly in new-build properties—have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit.

The balance of power in existing leases, legislation and public policy is too heavily weighted against leaseholders, and this must change.

Our report has recommendations for the Government to make this happen.

1. Ensure that commonhold becomes the primary model of ownership of flats in England and Wales, as it is in many other countries.

While it may be the case that retirement properties and the most complex, mixed-use developments would continue to require some form of leasehold ownership, there is no reason why the majority of residential buildings could not be commonhold.

Where properties are free from ground rents, lease extensions, and residents have more control over service charges and major works.

2. Introduce legislation to restrict onerous permission fees in existing leases and remove onerous ground rents in existing leases.

 Many of the permission fees and administrative charges we have heard about are plainly excessive, exploitative and yet another example of developers and freeholders seeking to extract money from leaseholders who have very limited recourse to challenge such fees.

While it would be difficult to change the terms of existing leases, it would not be impossible. Legislation could be made compliant with human rights law. Freeholders would probably need to be compensated, but that does not necessarily need to be at full value.

3. Introduce low-interest loans, a Help to Buy scheme for leaseholders

So that leaseholders who want to enfranchise or extend their leases, but cannot afford to or obtain the necessary finance, have the opportunity to do so.

Many leaseholders will struggle to afford to purchase their freeholds at any price.

This is a particular concern for house lessees on estates with a mixture of tenures, or where lease terms have affected the sale-ability and mortgage-ability of properties.

The Government must now respond to our report

Our report, Leasehold Reform was published on 19th March 2019, and the Government has two months to respond to our recommendations.

Detailed information from our inquiry can be found on our website.

If you’re interested in our work, you can find our more on the House of Commons Housing, Communities and Local Government Select Committee website. You can also follow our work on Twitter.

The Housing, Communities and Local Government Select Committee is a cross-party committee of MPs that scrutinises government policy.