Leasehold property changes explained what you need to know.

[Music] hello and welcome to London property the home of super Prime I'm your host panas Pai and today we're delighted to welcome back Katherine Simpson who's a partner at Edwin Co and specializes in leasehold reform welcome back to the show thank you for having me so Katherine um just to put our listeners uh on the same page as we are let's talk about how the lease hold and Freehold bill came about so it's a bit like trying to work out how the first world war started and I think you can probably trace it back to around 2017 uh with the leasehold house Scandal a lot of developers had built large housing um Estates all over the country so the likes of Taylor wimpy Barrett bway Pimon um and people thought they were buying freeold um but actually what they were buying were 999 year leases okay akin to a free hold but they included very often uh doubling ground rents so ground rents doubled every 10 years so you can imagine over the lifetime of the lease 999 years the rents were going to be pretty enormous um they also had uh Provisions in them in many cases that meant that every time they wanted to do something like paint the front door or build a conservatory they had to pay huge fees uh to these Developers um and it was considered to be very unfair it's caused people a huge amount of stress uh the competition and markets Authority uh looked into it and a lot of the developers have actually agreed to forgo those ground rents um some in exchange for RPI increases but certainly not as onerous as they had experienced um so this then led the government to commissioning uh the law commission to um recommend um the reform of the leasehold system basically to make inran easy and cheaper because a lot of the problems that these people had with their leasehold houses was how did they get the freeold now they were going to have to buy out those ground rents uh were they going to qualify um so it was seemed and it was also going to be very expensive so the law commission then produced about 101 recommendations so in two reports published in 2021 the first to make INF franchisement easier and the second to make it cheaper selling a leasehold house is a difficult concept it's often difficult to mortgage them uh because if you've got a ground rent that outside London is £250 or more um then it's more easily forfeitable by a landlord um and the same thing um with um in London if the rent's over ,000 which is obviously a much higher figure so that's why the the the the tenants lease holders decided that 999 year leases let try and just go for the freeold and then you saw that you got to actually buy out out the ground rent for 999 years before you can get the free hold so it becomes impossible actually especially if they're doubling exactly so this is the trigger for whole reform of the system the law commission basically came up with 101 recommendations and it was intended to be a root and Branch uh reform but that isn't actually what has happened so after these reports came out in 2021 everybody was waiting with ba of breath to see what the government would take away from them and I think it was probably as early as 2022 noises were made made by Gove about abolishing leas hold reinvigorating common hold um abolishing uh leases of of houses um very little of which actually made it into the bill in fact the abolition of leasehold houses has is a very recent Amendment to the latest the latest draft of the bill although apparently it says abolishing leasehold homes so what does that mean flats and houses right right so it was it's more a vote vote winner than actually thinking it through yeah I mean I would say that I would say that so now what would you say so what are the tenant lobbies saying about all of this what what are the to topics right now that you know it's been going and it's been debated for for two years so I I watched some of the select committee and I I felt that it was quite heavily tenant biased so you had um a group of of women from the leas hold knowledge partnership who I think at least one of them possibly all of them had come un Stu with the whole uh Freehold uh leas hold house Scandal and so it's been termed flee hold or fake freeold um and they were given quite a lot of airtime and I felt it was a huge amount of sympathy there was also a call to abolish ground rent which is subject to an ongoing government consultation it doesn't yet appear in the bill quite how that will look um there are various options being considered including capping it at 0.1% of freeold value tenants lobbyists are saying let's abolish ground rent altogether but effectively you would be tearing up a contract so there must be enormous human rights issues for uh those freeholders who will be deprived of their legitimate uh ground rent income and if you read the evidence on on the House of Commons website which I was showing you there's an awful lot from Pension funds uh Charities who rely on these ground rent income streams and my in my experience actually ground rent isn't the issue when it's just sort of 100% pounds a year so it it seems bizarre to abolish it particularly if you're going to be basically tearing up a contract how does that work well it sounds to me like there's two sides to this ground rent there's the ground rent that's been there since the ACT was introduced in 93 and has always been swallowed up in part of the the the situation and then there is the abuse by the developers of ground rent which so it should be really a two- tier solution which is why I think the ongoing investigation by the TMA is a good thing and I think more and more house builders will come out of the woodwork over that because reputationally it's it's disastrous for them to be seen to be fleecing people in this way so that so that that's welcome but tearing up leases and saying right Grand rent's over there must be human rights issues now because this didn't form part of the initial uh recommendations by the law commission it wasn't it wasn't actually considered in human rights terms what was considered other aspects of the valuation and the law commission got a uh opinion from a well then case QC obviously now Casey Katherine H Callahan who wrote about the human rights issues arising out of the changes to the to the valuation methodology which were being recommended but but she wasn't actually addressing the ground rent scrapping because that at that point wasn't really on the table right and I think I think she would probably say and I know that people have uh been seeking some advice from Human rights um Council that there is quite a case uh for for for an effective challenge which obviously could only be mounted once the law has been enacted and so so so leading on from this what are the landlord groups how are they responding to to the reform well in terms of things like scrapping ground rent there is there is an uproar um and obviously the valuation side which I think you got Justin Bennett talking about soon um I mean there are some aspects of the reform that are not controversial the ground rent scrapping is you have tenants groups saying well you know what are we getting in return for our ground rent no the clues in the word rent you are renting the land that your property sits on from from your Freeholder and I'm I'm I'm slightly weary of the whole rhetoric about feudalism and and because I think that fars people up in the wrong way and there's got to be a fair balance people do accept generally within the market that there needs to be a reform of leasehold system it's not completely broken yes it's open for abuse but like any complex system you're going to have abuses and and things that don't work quite well um a lot of the ACT is devoted to looking at service charges to keep cost down so tenants can litigate against unreasonable service charges and that's all pretty uncontentious it seems pretty fair but there are aspects of the enfranchisement valuation which are giving cause for concern the basic amendments to the to the qualifying criteria are generally not considered to be controversial so for example you're going to get a 990e lease not just 90 years um and zero ground rent so you buy out the ground rent it's 990 years not 999 I was going to say there was a logic to that I've forgotten so the reason is that um as now at the 90-year point in the 5year runup um a landlord is entitled to um get possession if he wants to redevelop the building which the flats contained that's the amendment yeah no that's as it exists it was the last year the last year of the original term so the extended term it's the last five years so the rationale behind 990 years is that the five years applies for every tranch of 90 years you're not just throwing it out at the end of obviously it would be pointless yeah which is a whole other topic so that so that's uncontroversial scrapping the 2-year ownership is also pretty uncontroversial it stops typical games of Cat and mouth between landlord and tenant when people buy and they haven't properly bought with the benefit of a claim it's very easy to come unstuck so that removes that um and also the the the sub subscribe form and making a mistake in how you actually fill it out and who's responsible well there is all of that but that this is what was expected that there would be the root and Branch reform hasn't really appeared so everybody's expecting the existing legislation to be literally uh torn up and started again that hasn't happened so the actual reads as basically a series of amendments pretty much it's pretty it's pretty hard to read I mean even the the chair of the select committee described it as being dry as dust right so it's it's it's it's it's tough reading okay glad you had to read a on me um so then if you had a magic wand and the government said right okay lawyers valuers you guys tell us what's the best way to do this what what would be the things that you as a lawyer think should have been done in a different way well coming back to the point that you made about about notices so the way notices are served drawn stopping this whole say the game of cat and mouse people got the notice is slightly wrong um and then and then if they withdrew the claim they couldn't make another claim for 12 months that actually is being removed so that's fine but but there isn't a wholesale reform of the system so it's it's a bit disappointing on many fronts I think so only only really The Bare Bones gone in in terms of qualifying criteria one of the one of the other big takeaways is the the 25% commercial limit um which stops you and collectively INF franchising where the commercial Parts exceed 25% of gross internal floor era is being raised to 50% so many more buildings will become enfranchise but of course there's outcry from freeholders over that so you've got the likes of grova you've got Capital Argent in Liverpool Kings Cross who've who've done fantastic itic new retail developments um so at the 25% level they can be assured of of keeping keeping their freeholds but now they they're going to lose lots of freeh holes and the problem is these commercial premises are going to be in the hands of people who don't actually know how to manage them yes I was going to say then the other complications that people don't think about is the actual day-to-day running of these things so all of this infrastruct this carefully considered infrastructure Gro big development in Liverpool are these places going to be in the hands of of amateurs I mean it's it's pretty frightening it's it's one of those sort of unintended consequences of which there are many in the legislation and but also I think it'll increase arguments amongst people collectively INF franchising because some will want to take over the commercial others won't yeah um and you can require landal that's another change to take to demand that they take lease back the moment it's it's it's optional so I suppose as you were saying earlier one it's actually passed is when people can actually then start disputing it legally and the landlords will get together on things that haven't really been thought out and practically will cause all sorts of issues and try and amend them um well the human rights challenge can obviously only be mounted once you have once you have the the enactment um so that's the issue but I had thought there'd be a lot of noise by landlord which make the government perhaps reconsider things but that the government seem to be holding absolutely fast on the on the valuation which includes um issues surrounding marriage value and how the premium is calculated they're holding fast don't seem to be listening um but some people think that they will have to listen because otherwise they are going to face um huge uh compensation claims yeah well uh as you say there are some good things about it and I think that whole 2-year ownership and the you can't serve notice if you fail the first time for another 12 months would definitely be well received by a lot of people people but in the state agency world people are you know buyers are thinking they're going to wait and get a deal so that's a topic on valuation that we will have to discuss with Justin but uh one of the other contentious things is the fact that tenants will no longer have to pay landlords reasonable recoverable costs so that's their valuation cost and cost incurred in in the claim that seems to me to been terribly unfair because in any other compulsory purchase situation uh landlords don't have to pay their cost if they're forced to sell their property well somebody else has to pay the cost of that process not the landlord which actually makes me think of a question what about the fact that a tenant has to uh serve notice with a number that is reasonable in order to keep the notice valid but the landlord can counter uh offer and be unreasonable is that going to be addressed no that won't change okay no that won't change I mean I suppose the point about it is to stop just putting in offers in bad faith um right and that that that will invalidate a notice well maybe the fact that the landlords are going to be paying for their own costs will make them be a lot more reasonable and keep it short and keep it cheap maybe but I think part of the problem will be that you will have landal to therefore avoid taking proper valuation and legal advice and there'll be there'll be much more um fights in the courts so well thank you so much for coming to talk to us again and uh you know I we really like to keep in close contact with you so that you can keep updating us on on what's happening in the legislation absolutely thank you so much for your time thank you we hope you really enjoyed that insightful discussion with Katherine and if you've got any questions about the lease hold and free hold bill then do please get in touch with us and we will connect you with the right professional to help [Music] you

Channel: London Property

Views: 918

Keywords: leasehold, freehold, legislation, reform, housing market, uk news, property, leashold reform, ground rent, modern ground rent, leasehold property explained, housing con, 990 year lease extension, ground rent abolished, 90 year lease extension, leasehold property, home owenership, marriage value, leasehold property meaning, married value abolished, peppercorn ground rent, statutory lease extension

Id: HBHIw5Mcqlc

Length: 15min 25sec (925 seconds)

Published: Thu Apr 11 2024