On December 21st 2017, in response to their consultation on Tackling Unfair Practices in the Leasehold Market, the Ministry for Housing, Communities and Local Government (“MHCLG”) announced its intention to ban long-term leasehold for newly built houses. There was also a concerted effort to prevent exploitation of leaseholders by stopping onerous leases with aggressively escalating ground rents, the so called ‘ten and fifteen-year doubling’ leases by reducing all future ground rents to a peppercorn (equivalent to a zero financial value).
Reform of the long-leasehold market is necessary because of a lack of clear market-led regulation around ground rents which has in recent times led to onerous terms for certain long-leaseholders and ultimately homeowners.
The Government’s ongoing programme of leasehold reform is continuing and since the inaugural announcements:
- The Law Commission has published a call for evidence to “help make commonhold more common”.
- The Government remains under intense pressure to identify long term solutions to the challenges in the wake of the Grenfell tragedy around fire safety and unsafe cladding and alternatives for commonhold.
- MHCLG fielded questions from the Housing, Communities and Local Government Select Committee and were unable to respond to specific points raised around the unintended consequences of reducing ground rents to a peppercorn.
There remains substantial benefits to having a freeholder which is professionally managed but this is threatened by a potential ban on ground rents and/or their reduction to a peppercorn. For example, a responsible regulated freeholder plays a valuable role in protecting consumers by resolving issues relating to fire safety, ensuring properties are maintained in the long-term interest of residents and managing properties in a professional and efficient manner.
However, knee-jerk creation of mandatory residential management or commonhold systems to replace professionally managed freeholders could only serve to exacerbate the Government’s concerns.
Complexities of resident controlled management boards
Implementing a structure where residents are in full control of the management structure of a building – either through Right to Manage (RTM) or Residents’ Manage Companies (RMCs) raises serious concerns, particularly in relation to the management of communal areas for the long term, maintaining complex design structures and plant, resolving resident’s disputes, dealing with complex emergency situations and decisions being made by simple reference to cost rather than safety, deliverability and long-term value for money.