Leasehold Reform Bill is only "baby steps" towards relieving the pain of leaseholders

The Leasehold and Freehold Reform Bill had its second reading in the House of Lords today.

These reforms would bring “greater fairness, security, transparency and competition to the leasehold market” said Baroness Scott of Bybrook (Conservative), parliamentary undersecretary to the Department of Housing.

“Leasehold homeowners are too often at the whim of their freeholders, disempowered by the fundamentally unfair system.”

The Bill includes an automatic 990-year lease extension, with ground reduced to “peppercorn” rates – on payment of a premium – of 0.1 per cent of the freehold value.

Reports circulated earlier this week that this cap is being challenged by the Treasury and Prime Minister, following lobbying from pension funds investing in the ground rent market.

Responses to a consultation on the ground rent cap is still under consideration.

Under the draft legislation, leaseholders would also be given powers to replace the managing agent for their building, if they find the service charges unreasonable.

This will encourage management agents to “up their standards” said Baroness Scott.

The Bill also seeks to scrap the current system where leaseholder’s pay their freeholder’s costs – even if they win the tribunal case.

It would also ban the creation of future leasehold houses – but not flats. In London, 63 per cent of flats are owned on a leasehold basis.

Currently there is no provision in the draft legislation for the issue of forfeiture, where homeowners can have their leasehold property taken away if they owe money on these extra charges.

“We recognise that this is a real and significant problem,” said Baroness Scott. “We are working through the detail on this, and we will report back to the House shortly."

But Baroness Taylor of Stevenage (Labour) said it was “not the Bill beleaguered legions of leaseholders wanted”.

“What we have before us today is a virtually eviscerated shell of the bill,” she said, referencing Secretary of State for Housing Michael Gove’s original plans to scrap the leasehold system entirely.

Baroness Taylor recounted a “particularly heartbreaking” letter from an older couple facing service charges of £6,802 a year on their apartment, as well as an increase on their ground rent from £4,000 to £28,000 a year backdated six years.

“I have received many representations from young people whose dreams of home ownership have been shattered when they finally save their deposit and buy a home, only to find that the terms of their lease leave them at best shackled to a regime of unreasonable cost increases, and at worst unable to sell their home because the lease conditions are too onerous.”

In its current form, the Bill has not delivered on what was originally promised in the 2017 Conservative Manifesto, argued Baroness Taylor.

“It doesn’t ban the sale of leasehold flats, it doesn’t properly ban the sale of leasehold houses,” she said.

“We could have had a Bill that fundamentally reformed the leasehold system, making leasehold obsolete.”

Instead, she said, the draft legislation is only “baby steps” towards addressing the plight of leaseholders in the UK.

Baroness Taylor also highlighted that the ground rent cap is the subject of a consultation, and asked whether government amendments would be made.

Linz Darlington, founder of leasehold extension service Homehold, has also voiced their concern on the situation surrounding the ground rent cap.

“High ground rents, in addition to being an unwelcome or unaffordable expense for leaseholders, can make it hard to sell or re-mortgage properties. One example is a leaseholder who contacted me this week because their ground rent had increased from a nominal £25 per year to nearly £2,500,” he said. "The Leasehold and Freehold Reform Bill is highly vulnerable to being watered down,” he added.

“Those responsible for ensuring the bill meets its objective of making it ‘cheaper and easier”’ to extend leases and purchase freeholds need to ensure they do not let vested interests get in the way of political mandate."