Leasehold Reform - Government must get the balance right

Three members of the Association of Leasehold Enfranchisement Practitioners take a brief look at some of the trials and tribulations awaiting the new legislation as it begins its long journey to the statute books. Mark Chick, John Midgley and Mark Wilson – all directors of ALEP – share their views below.

On the announcement of the Bill

The announcement of the Leasehold and Freehold Reform Bill in the King’s Speech could bring good news for property valuers, conveyancers and the 4.9 million homeowners in England and Wales with leases – or it could fuel confusion, cost and controversy.

As the professional body for leasehold enfranchisement practitioners – surveyors, solicitors and barristers – we have been lobbying for, and supporting the Government in bringing forward change, for many years. At ALEP’s October conference, lawyers and property professionals polled said that they supported change: asked ‘In general, is the leasehold system in need of reform?’, 77.37% responded ‘yes’. The majority view of ALEP’s members, on behalf of the homeowners and landlords that they represent, is that leasehold reform is infinitely preferable to the alternative: outright abolition.

Mark Chick,  Partner and Head of the Landlord & Tenant team at law firm Bishop & Sewell and a director and founder committee member of ALEP

On extending leases from 90 to 990 years

Extending leases to 990 years as has previously been proposed is an ‘easy win’ and will be welcomed by leaseholders. In valuation terms the cost is likely to be not that much more than the cost of a 90-year extension (absent any other valuation reforms) and therefore is a simple and effective reform that means that once extended, a lease will not need extending again.

On removing leasehold in the case of new houses but not flats

Whilst the long-term aim might well be to make all flats freehold or commonhold, at the moment it simply isn’t possible to make new flats freehold until the work necessary to make the existing system of commonhold fit for purpose is complete. The issues with the current system of commonhold are well documented and the Law Commission has made extensive recommendations as to what needs to be done to ‘reinvigorate’ commonhold.

The government has set up the Commonhold Council to identify the work that needs to be done on this and in order to see an accelerated take up of commonhold, those who wish to push for this should direct their energy towards encouraging the government to make this happen.

John Midgley, Director of ALEP and Partner at Seddons

On the proposal to cap existing ground rents at a “peppercorn” rate

This is one of the areas in which greater consideration of the detail is required: what is meant by ‘peppercorn’ rates? We anticipate that this will mean a cap on the level of a ground rent that can be collected, perhaps by reference to a fraction of the capital value of the property. While there are clear benefits in doing so, particularly for leaseholders with high or uncertain ground rents, this could substantially reallocate wealth from freeholders to leaseholders. I wonder if the Government has fully considered the implication on private pensions, for example – many of which have considerable investment in ground rents. The political implications of this (specifically among the PM's own party) could be considerable.

Other implications will include a knock-on effect on the cost of new homes, as any statutory cap on ground rents will impact what the market will pay for a freehold.

In conclusion

We fully support the aim of making the process cheaper and easier for leaseholders, but clearly leasehold reform is complex, extensive and impacts on many more stakeholders than is immediately apparent. We would caution that the Government consults widely and takes a considered approach to all aspects of potential reform, rather than rushing out unfinished or extemporaneous legislation that is not fit for purpose, and which could cause unintended confusion and harm – we do not wish to see a repeat of some of the issues that have arisen following the recent Building Safety Act.

ALEP has previously had an influential role in influencing reform and hopes to contribute constructively to future discussions. The next year will no doubt be an eventful one for politicians, both in electioneering but also in protecting the many millions of leaseholders who have anticipated this reform for many years. Leasehold reform involves a balancing of interests, and it is vital that this is done carefully.

Mark Wilson, Chartered Valuation Surveyor and RICS Registered Valuer, and a founder member of ALEP and Managing Director of myleasehold