Housing committee calls for leasehold reform

Housing committee calls for leasehold reform
Gareth Fuller/PA

The Housing, Communities and Local Government committee has called for wide ranging reforms to the leasehold system in the UK following allegations of misselling.

In a report published today, the committee found the balance of power in existing leases, legislation and public policy was too heavily weighted against leaseholders as it called for the Competition and Markets Authority to investigate mis-selling in the sector and make recommendations for appropriate compensation. 

According to the report, it would be legally possible for the government to introduce legislation to remove onerous ground rents in existing leases. 

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It said that existing ground rents should be limited to 0.1 per cent of the present value of a property, up to a maximum of £250 per year. 

Clive Betts MP, chair of the committee, said: "We found that the leasehold system often fails to provide an effective system for managing multi-occupancy residential properties, and believe that a commonhold model would be more appropriate in most circumstances. 

"Buildings require effective management to ensure they are kept up to a sufficient standard of repair, but to spread responsibility for covering the costs. Yet in too many cases, leasehold has failed to do this, and acted primarily as means of providing a steady income for developers, freeholders or managing agents.

"In the worst cases, people have been left trapped in unsellable and unmortgageable homes, needing permission or having to pay high fees for even minor cosmetic changes.

"More common are opaque service charges and poor levels of maintenance, with no reasonable means for leaseholders to challenge or query how their buildings are managed. Financially, the buck always seems to stop with the leaseholders and there is little they can do about it."

He added: "Over the course of this inquiry we have heard a number of claims that individuals have been mis-sold.

"Developers are adamant that they have not deliberately misled buyers with false promises or partial sales information.

"However, the pattern of near-identical stories demonstrate significant failings in the process. A mandatory document detailing standardised key features of the sale would help prevent such cases being repeated."

Mr Betts said there was "no reasonable case" for a house to be sold as leasehold and called on the government to "tip the balance back towards leaseholders" in areas such as ground rents, service charges and dispute mechanisms.

This included explicitly setting out in legislation how ground rents and permission fees should operate in existing leases, providing transparency for leaseholders, and establishing robust mechanisms for dispute resolution.

Mr Betts also claimed financial incentives to use preferred solicitors "raise serious questions of a conflict of interest". 

Meanwhile, the report suggested the government should revert to its original plan and require ground rents of newly established leases to be set at zero financial value. 

It has also been recommended that the government ensure commonhold becomes the primary model of ownership of flats in England and Wales.