New Government proposals re leasehold reform

[perigee]

I see that there are proposals to simplify the extension/enfranchisement procedures and reduce the costs for lessees, including abolishing marriage values. I appreciate that these are early days but is there any guidance from professionals acting for landlords - as distinct from lessees - on these issues, A year ago I calculated I was sitting on £100k of unrealised marriage values - can I kiss this all goodbye. Are the big landlords simply going to roll over and give up.

[Sussex818]

It looks to be happening, it would be farcical if the government done a U-turn on this now but nothing would be a surprise to me.

Leasehold laws are draconian and it's about time a change happened.

[sgclacy]

It is very likely that marriage value will be abolished - BUT the deferment rate of 5% is well overdue a review in the light of significant and long term falls in the risk free rate

at the time of Sportelli in 2006 the risk free rate was 2.25% and the Ogden rate set by the government at the time for personal unjustly claims was at 2.5% - the governments own measure of the risk free rate is now MINUS 0.25% so a reduction in the deferment rate and if articulated well could see it fall to at least 4% if not lower

At 4% deferment rate marriage value all but disappears and would make the calculation of the premium easier and quicker and cheaper because professional fees would be a great deal less

The resulting premium if 4% was used would make up for the loss in marriage value

It’s absolutely certain that the Great estates in London will run the argument all the way to the European Court as the sums at stake as you can imagine could be in the hundreds of millions

auction price for reversionary ground rents in London indicate that investors expect the proposals to be significantly watered down

[sgclacy]

Following on from what I said earlier

https://wslaw.co.uk/insight/defermen...1-ukut0251-lc/


This article considers whether there may be a challenge to the deferment rate

The reported case of Llangewydd Court Ground Rent Estate v Ralph [2021] UKUT0251 (LC) indicates that if a rigorously prepared case had been put forward articulating the argument for a lower deferment rate it might have gained traction. Unfortunately in this case that went to the FTT and then to appeal the sum involved was quite modest and the case could not justify bringing experts from the financial world to support the arguments made.

[AndrewDod]

Leasehold laws are draconian and it's about time a change happened.

I can't really agree with this perspective - albeit I am someone who has massive problems with the whole sector and its functioning.

People purchase things and arrange and agree contracts based on what that contract is, and price the thing accordingly. To massively change the terms of contracts made by people within the population in retrospect is outrageous.

The real problem is that of wholesale crookery/theft within the sector by many freeholders WITHIN existing legislation and where the legislation practically functions in such a way as to facilitate the thefts and to make prosecution impossible.

The issue of known and contracted ground rents and costs of changing contracts is a complete red herring and distracts from dealing with the real issues. Indeed the distraction is by design.

None of the massive problems are addressed by so called leasehold reform -- for example service charges theft and non-transparency, reserve fund misappropriation, the ability of freeholders to prevent sales of leases, thereby driving down prices which they then benefit from... and so on.

[sgclacy]

It was proposed last year that ground rents should be capped at £250 ignoring any sums above that and future reviews - it was argued that lessees did not understand what they were taking on or had no choice but to agree to such ground rent terms.

if that later argument is accepted that would open the flood gates and allow by extension to argue that many lessees were forced to pay high prices for property as they had no choice and prices paid should now be adjusted downwards and refunds claimed.

Taylor Wimpey are prepared to remove 10 year doubling ground rents even to second hand buyers - with no restriction where that second hand buyer may we’ll have bought the flat far cheaper because of the 10 year doubling ground rent - I find that most bizarre

[eagle2]

I agree with Andrew, increasing ground rents are not the most important problem facing leaseholders, they are insignificant compared to the huge sums overcharged by rogue freeholders and agents and the misuse of service charge monies. The offenders are known to the courts and tribunals.

[sgclacy]

I agree with Andrew, increasing ground rents are not the most important problem facing leaseholders, they are insignificant compared to the huge sums overcharged by rogue freeholders and agents and the misuse of service charge monies. The offenders are known to the courts and tribunals.

I agree - the idea that a ground rent of say £300 per annum linked to the RPI on a flat worth £225k is akin to a wrecking ball on the value of a flat is absurd. The campaigners have created a near hysteria about a sideshow that has resulted in lenders refusing to lend and blighting properties - there are real issues on leasehold in regard to service charges etc and this sideshow over ground rents wastes the campaigners time and energy.

The idea that contracts entered into over a period of a few months with both parties having professional representation should in effect be torn up on the basis that the lessee did not understand what they were signing up to, or signed as it was their only option, is frankly absurd. There will be cases where the legal representatives acting for the lessee failed to advise or were compromised, but there are options that those lessees can take to seek redress. It is not sufficient grounds for hundreds of thousands of lessees to be released from the financial obligations they entered into

[NaomiB]

"for example service charges theft and non-transparency, reserve fund misappropriation, the ability of freeholders to prevent sales of leases, thereby driving down prices which they then benefit from... and so on."

Well yes, we've got the non transparency, reserve fund misappropriation but how can freeholders prevent sales of leases? You've got me worried now!

[JK0]

Well yes, we've got the non transparency, reserve fund misappropriation but how can freeholders prevent sales of leases? You've got me worried now!

If a freeholder has been charging exorbitant 'consent to let' fees, but the lessee has refused to pay them, they can be demanded again with interest when the lessee wants to sell. Pending payment the freeholder simply refuses to process any sale papers.

[Lawcruncher]

I can't really agree with this perspective etc

I half agree with you. Where I differ is with respect to retrospective change. I am all in favour of people keeping to bargains they have struck. However, the principle is not absolute. So long as the other party has full capacity, a party should be able to drive a hard bargain, but not an unfair one. As Lady Hale put it in the bank charges case, you should be allowed to make an unwise bargain but not an uninformed one.

The problem with long leases is that many clients are not informed. Few clients get past page 1 of a 10 page lease let alone a 70 page one. If they do they will not take most of it in. The conveyancer's job has to be to read the lease and draw the client's attention to the salient points. Even then, the letter is going to be long and the client may only skim it. Buying property is a stressful time and the client will have other more practical things on his mind like arranging the removal van. The client trusts the conveyancer to make sure he has no problems. Many conveyancers are letting their clients down by allowing unreasonable conditions. When I was working I would sometimes be amazed that a property could pass through several hands when the lease contained some serious defects or unacceptable provisions. Years on this forum has confirmed my opinion that many buyers of leasehold properties are not properly advised.

Leases are now being drawn up to make a nice little earner for the landlord or provide an extra asset someone will be more than happy to buy. Any suggestion that the ground rent is all part of the bargain does not wash because people do not see it like that if they see it at all. The only reason flats are sold on long leases is because of the difficulty of enforcing positive covenants without a lease.

The position has now got totally out of control: A significant proportion of property owners not only effectively have to buy their properties twice but are getting ripped off. We have almost got to the stage where, even if the lease is well drafted and fair, conveyancers are negligent if they do not strongly advise against buying leasehold properties.

[eagle2]

What is happening in practice is that freeholders are striking deals with builders at an early stage, often before any building work commences, they are preparing the lease and agreeing to purchase the freehold from the builders after all the apartments have been completed. Yes leaseholders should be warned about the risks of purchasing leasehold property but that should take place at the outset before any costs have been incurred and before any contracts have been signed.

The leaseholder has absolutely no say in changing the terms of a lease. It is usually presented at the 11^th hour on the basis that it is a standard lease for the entire block and it cannot be altered. The leaseholder is then threatened that completion must take place often in a matter of days, otherwise the deposit will be forfeited or penalties for late completion will be imposed. There is no cooling off period. A leaseholder is already under duress dealing with everything involved in moving home.

I would like to see all leaseholds on 999 year leases, standardised fair terms for all leases, peppercorn ground rents, leases presented to leaseholders at the outset, a cooling off period, all management under the control of a leaseholder owned company, strict control over service charge monies and severe penalties for those who misuse those monies, a fair and simplified system of dealing with disputes with no access to the service charge monies for that purpose, costs to be determined if one party acts unreasonably,

[Lawcruncher]

As to the first paragraph of post 12: I agree. If I were still doing conveyancing I would prepare a no-holds-barred information sheet for clients proposing to buy leasehold property.

As to the second paragraph: It is indeed true that on the grant of a new lease in a development the draft lease is presented on a take-it-or-leave-it basis. That has to be the case as all leases need to be the same. On an assignment of any lease you are fixed with the terms unless the landlord can be persuaded to change them. It is though not the case that the lease terms are presented at the eleventh hour. The draft lease is supplied at the beginning of the conveyancing process and therefore before contracts are exchanged. There can be no possibility of a deposit being retained.

As to the third paragraph: I do not agree with the idea of a cooling off period when a party is legally represented. Otherwise I agree with the thrust.though I would go further and simply make commonhold compulsory. That does though leave the question of what happens to all existing long leases. I say automatic conversion to commonhold with no compensation.

[SouthernDave]

I would like to see all leaseholds on 999 year leases, standardised fair terms for all leases, peppercorn ground rents, leases presented to leaseholders at the outset, a cooling off period, all management under the control of a leaseholder owned company, strict control over service charge monies and severe penalties for those who misuse those monies, a fair and simplified system of dealing with disputes with no access to the service charge monies for that purpose, costs to be determined if one party acts unreasonably,

Sir, where can i vote for you in the next election?

[Sussex818]

The proposition is that all new lease extensions will be 990 years after reform and there will also be a standardized calculator to work out the cost of a lease extension which will make it much simpler and hopefully swerve the huge legal bills which leaseholders have to pay for a statuatory lease extension.