Crackdown on Unfair Leasehold Practices: Negative Impact on Housing Supply and Affordability?

Sajid Javid MP; Department for Communities and Local Government; Tackling Unfair Practices in the Leasehold Market; Private Sector; Leasehold Reform Act 1967; Housing Supply; Housing Affordability; Property Law

Department for Communities and Local Government statistics estimate there were 4.2 million residential leasehold dwellings in England in the private sector in 2015-2016 and of these 1.4 million were leasehold houses (following a rise on the previous year when there were 1.2 million leasehold houses).

With this increase and over 6,000 responses submitted to the recent Government consultation on tackling unfair practices in the leasehold markets, (the vast majority of which conveying serious concerns) Sajid Javid MP decided to take action and crackdown on unfair leasehold practice.

Communities Secretary, Sajid Javid MP:

"It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices. That’s why the measures this government is now putting in place will help create a system that actually works for consumers"

The Department's proposals, of which we will focus on within this article, include:-

• Legislating to prevent the sale of new build leasehold houses except where necessary such as shared ownership;
• Making certain that ground rents on new long leases are set at zero;
• Working with the Law Commission to support existing leaseholders and make the process of purchasing a freehold or extending a lease much easier, faster and cheaper
• Providing leaseholders with clear support on the various routes to redress available to them;
• A wider internal review of the support and advice to leaseholders to make sure it is fit for purpose in this new legislative and regulatory environment; and
• Making sure freeholders have equivalent rights to leaseholders to challenge unfair service charges.

Link to Press Release [21 Dec 2017]

The thought process for many is not whether the implementation of these measures is fair, as the majority of individuals agree the circumstance as it stands in the UK is not fit for purpose, but instead how the measures will adversely impact the housing market.

Public Concerns

A point of contention raised within the consultation surrounded the impact these measures may have on the supply of new homes.

Some developers argued that the implementation of legislation which prevents the leasehold sale of new build houses would have a negative impact on the supply of housing, asserting that a blanket-ban would reduce the volume of available land for development where landowners did not want to sell their freehold interest. This is in addition to others putting forward that the mere limitation to the leasehold sale of new build houses could impact the nature of new developments as developers grow reluctant to bring forward schemes with shared facilities and/or communal grounds.

Although this viewpoint was not shared by the majority of lenders and housing practitioners, these individuals instead put forward that a blanket-ban may in turn cause a price increase, affecting affordability. Many respondents to the consultation also asserted that the proposals will impact the availability of institutional financing, which had provided access to cheap development finance and enabled some marginal schemes to become viable.

Government Response

In spite of these assertions, the Government within their consultation response have said that, other than in exceptional circumstances, they cannot see any good reason for new build houses to be sold on a leasehold basis. The Governments justification for bringing this legislation forward as soon as Parliamentary time permits is their concern surrounding inconsistent and inadequate protections for leaseholders. The Government have asserted that exemptions to the ban, e.g. Community Land Trusts and shared ownership properties, should negate the aforementioned impact upon the supply of housing, affordability and the availability of institutional financing.

Whilst this statement does concur with the viewpoint of the majority of the respondents to the consultation, many believe that the exemptions found within the Leasehold Reform Act 1967 should also remain in place - specifically in reference to the preservation of buildings with special architectural or historic interest and to support shared ownership. The Conveyancing Association, however, did not share this viewpoint, arguing that buildings of such nature can be protected via other means, i.e. through listings and conservation areas.

Future?

The Government has expressed interest to take these reforms beyond the limitations imposed by these measures by reviewing: commonhold as an alternative tenure; the cost of buying/selling a leasehold house; and the regulation of residential managing agents.

What, in your opinion, will be the resulting condition of the UK housing market following the passing of these measures? Will it benefit leaseholders at the expense of affordability or housing supply?

The information provided in this article reflects the narrative of the writer only. The contents of this article is not legal advice and should not be relied upon as such. Please note no attorney-client relationship shall be formed should any adverse consequence arise from reliance upon the information provided within this article.