Don’t mistake an industry pledge for a change in legislation…
15 April, 2019
Last months industry pledge on Leasehold Reform signed by over forty of the largest housebuilders and landlords in this country is deemed to be a breakthrough and a sign of important changes to come in this sector.
James Brokenshire has certainly worked hard to get these stakeholders to come to the table and reach agreement on some key issues but it is only a pledge and there have been plenty of people quick to be critical of how far it goes and what it will really mean for lessees.
Legislation on leasehold reform is still a long way off, even if the Law Commission press forward with proposals this year it could easily be 2022 before anything is passed by Parliament. So why is the pledge so important? The key element of the pledge is that freeholders will now actively contact lessees and offer to vary any doubling ground rent clauses contained in their leases to a review by RPI. In addition they will not grant any new leases with a clause whereby the ground rent doubles less frequently than every twenty years. This is important because lenders don’t like doubling ground rents, especially when the reviews are as frequent as every ten years but, RPI is seen as an acceptable way of raising ground rents. This means that buyers whose options for borrowing were limited should no longer have that issue. It does not resolve the problem faced by some owners of leasehold houses who are unable to sell their homes because others on the same estate are being sold with a freehold tenure, those people will continue to be at a disadvantage regardless of the rent level, time and terms of review.
Freeholders, housebuilders and lenders gave evidence to the select committee over the first few months of this year and the minutes and subsequent correspondence with those parties make interesting reading and the report is now with the government for its consideration. The select committee seems to favour a wholesale change to commonhold but will the lenders misgivings be enough to sink that plan? Will the threat of major institutional ground rent owners and pension fund holders exiting the sector if nil ground rents are introduced sway future legislation?
There are a lot of key stakeholders involved here and their voices must count for something to ensure that the changes that are made are right for everybody.
If you need any advice in relation to this, please do not hesitate to contact our Residential Property expert, Jane Canham at Jane.Canham@storrarcowdry.co.uk.