Freeholders’ good behaviour pledge

A group of freeholders has signed a government-backed public ‘pledge’ to free existing leaseholders from being trapped in onerous deals. The pledge also expresses commitments to future leaseholders including not to insert into any future lease agreement a clause by which ground rent doubles more often than every 20 years.

Leading companies such as Cala Group, Bellway Homes and Taylor Wimpey have signed the pledge, as well as organisations including the Association of Residential Managing Agents (ARMA) and the Home Builders Federation (HBF).

The move paves the way for a more transparent and fairer system for leaseholders who are being stung by onerous grounds rents. Of particular concern (now firmly on the government’s radar), is the existence of legal loopholes that continue to force leaseholders into paying unjustified fees when they take their freeholders to court over pernicious service charges.

The pledge

Key parts of the pledge include committing freeholders to take proactive steps to:

  • Identify any existing leases which include clauses doubling ground rent more frequently than every 20 years; and contact leaseholders with an offer to amend to one linked to RPI;
  • Ensure the process for leaseholders to acquire the freehold on their home or extend their lease terms is uncomplicated, transparent and fair;
  • Support leaseholders wanting to take over the collective management of their homes and any communal areas in line with their statutory right;
  • Have a transparent and fair complaints process, and an appropriate redress scheme, to ensure complaints are dealt with and redress given quickly.

The signatories have also committed to work with other freeholders and stakeholders to develop a comprehensive Code of Practice which will establish freeholders’ responsibilities; and enshrine the highest standards of property management and maintenance.

Developers who sign the pledge promise to adhere to similar commitments.

All signees pledge to recognise the key principles set out to ensure the leasehold system is as fair and transparent as possible, including in relation to the responsibilities of managing agents.

What about legal advisers? The pledge sets out that they must act in the client’s best interest, “always acting in good faith, providing advice in a clear and accessible way and should always observe obligations with regard to conflicts of interest”, and taking “all necessary steps to ensure a potential leaseholder is aware of all relevant costs associated with the lease before such a lease is signed, and these are presented in a plain-English, clear and transparent way”.

The pledge is set out in full here.

Will it prove effective?

The pledge was publicised by government back in March 2019, but will it prove effective or an empty token gesture? The initial signs are promising. The pledge forms just one part of the Government’s response to serious concerns about the problem of unfair leasehold agreements by trying to end exploitative and unfair leasehold arrangements and protect existing and future leaseholders from onerous fees.

On publication of the pledge Richard Silva, executive director of pledge signatory Long Harbour, described it as “a crucial first step towards positive change in the residential leasehold market and it reflects our commitment to eliminating bad practice from the market”. The Law Society also says it largely welcomes the proposals.

But while some welcomed it as a good start, critics point out that the pledge is not binding and has no statutory force; so those that sign the pledge could merely be paying lip service to the issues – and that the pledge effectively puts landlords (those responsible for exploiting leaseholders) in charge of regulating themselves. The government has also been accused of being naïve in believing this will make a difference.

Further moves

Of greater reassurance, government has responded to the responses to its recent consultation on how to implement plans to tackle exploitative practices in the leasehold sector. In its response, Secretary of State for Housing, Communities and Local Government James Brokenshire said it was clearer “than ever before that Government needs to take urgent action to reset the system”.

So how will it do this? Most notably, he made clear that unless there are exceptional circumstances, all new houses will be sold on a freehold basis unless they are ‘exempted properties (eg retirement properties and community-led developments).

Leases with ground rents above a peppercorn (zero financial value) will be unenforceable in law. A working group of housing experts is also to be established with the purpose of looking at “raising standards across the entire property agent sector so homebuyers, sellers, tenants, landlords and leaseholders receive the best service possible”.

Potential moves include regulation and the introduction of mandatory qualifications for all property agents. The working group would also look at under what circumstances leaseholder and freeholder fees and charges on properties (for example, the use of restrictive covenants, leasehold restrictions, administration charges) – are justified; and whether they should be capped or banned.

Further proposals include:

  • a new statutory 15 working day time limit to provide leasehold information to a prospective buyer;
  • a maximum fee of £200 + VAT for freeholders and managing agents to provide leasehold information to prospective buyers in the form of a leasehold property enquiry (LPE1) pack;
  • buyers “incorrectly” sold a leasehold home will be able to acquire the freehold outright at no extra cost.

Transition

Although legislation has not yet been brought before Parliament, there will be no transitional period after the legislation comes into force. Government says by the time the legislation comes into force its proposals will have been in the public domain long enough for the sector to prepare for the changes.

Government says it wants to ensure consumers only pay for the services they receive and gain material benefits from. The signs are that the extensive scrutiny to which the leasehold sector – or more accurately, unfair leasehold practices – has been subjected in recent years is playing out firmly in favour of leaseholders.

When the government proposals are finally implemented, a level playing field seems achievable.

 

 

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