Just imagine that you wanted to buy a new car.
So, you visited your local car dealer and discussed the options with the salesperson who, from the moment you stepped through the door, was wondering about the size of the commission that might result from any sale.
The salesperson showed you the range of vehicles on offer. You are quite taken by one car, but it’s well outside your price range. ‘Never mind’ said the salesperson. ‘I can make that entirely affordable. We have a special offer for you. You buy the car at 20% less than the price on the windscreen, but you rent the car’s electrical system. The rent is very low – and you can buy the electrics at any time you want - but it doubles every year.’
Probably not, but it’s the sort of deal which some people have found themselves drawn in to when buying their new home. Of course, car life is measured in years rather than decades and cars tend to depreciate rather than hold their value or appreciate, which is why ‘ground rent on the house doubles every ten years’ might not have rung the loud alarm bells that it should have done.
Clearly some house-buyers just didn’t understand the real negative impact on a house’s value that an escalating ground-rent would bring.
There are also some big questions to be asked about the warnings that should have been given by the conveyancing solicitors, especially when the solicitors were acting for both the developer and the purchaser (‘we can save you money by doing this’).
Even bigger questions still need to be asked of the builders and developers who thought they could get away with this building model, at a time when they have already been making record profits and paying multi-million pound bonuses to their directors.
The government has now announced that it plans to ban on the sale of houses on a leasehold basis. However, we are yet to see the details. In the meantime, it really is a case of caveat emptor.
Any legislation will need to carefully distinguish between ‘ground rent for leasehold’ and ‘annual service charges for the maintenance of communal areas and services on the development’. The boss of one large developer of homes for the elderly has been conflating these two things to support his opposition to any ban. No doubt, some lawyers with sharp pencils will be looking to find ways around any such ban.
Meanwhile, the Law Commission – the independent legal body charged with reviewing and simplifying the law and making recommendations for consideration for changing or clarifying the law – has now put forward some proposals to help existing leasehold homeowners to buy the freehold of their houses.
As one of the Commissioners said about the existing situation “… the law is failing homeowners: it’s complex and expensive, and leads to unnecessary conflict, costs and delay.”
The proposed measures include:
- making it easier for lease-owners to buy the freehold
- options for changing the valuation formula, which would reduce the price to be paid for the freehold, whilst still appropriately compensating landlords
- removing the minimum two year requirement before starting a claim
If you are already a leaseholder or you are contemplating the purchase of a leasehold property, I really do recommend that you make the Law Commission’s report1part of your essential summer reading. It’s an excellent summary of the existing law, the problems and the proposed solutions. And it’s great value as you can download it free!
In September 2018, the Commission intends to publish a consultation paper on enfranchisement. This will propose a new, single regime for leasehold enfranchisement designed to benefit leaseholders of houses and flats. There will then be a public consultation on the proposals; make sure you make your views known.
And, before the end of this year, the Commission also intends to publish consultation papers on commonhold and on the Right to Manage. So, your Autumn and Christmas reading is settled as well.
1 Leasehold enfranchisement: A summary of proposed solutions for leaseholders of houses, Law Commission