Leasehold Advisory Service chief on commonhold and ban on further leasehold build

 The replacement of leasehold by commonhold came up yesterday when Martin Boyd, chairman of the Government's Leasehold Advisory Service appeared before the Leasehold and Freehold Reform Bill Committee LINK.

Asked about the risks in the switch Boyd said:

Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.

Later in the session he added:

I am proud to say that it was LKP that restarted the whole commonhold project in 2014. At the time, we were told, “The market doesn’t want commonhold.” The market very clearly told us that it did want commonhold; it was just that the legislation had problems in 2002. One of our trustees, who is now unfortunately no longer with us, was part of a very big commonhold project in Milton Keynes that had to be converted back to leasehold when they found problems with the law.

I think the Government have been making it very clear for several years that they accept that leasehold’s time is really over. I do not see any reason why we cannot move to a mandatory commonhold system quite quickly. What the developers had always said to us—I think they are possibly right—is that they worry that the Government might get the legislation wrong again, and they would therefore want a bedding-in period where they could test the market to ensure that commonhold was working, and they would agree to a sunset clause. They had fundamentally opposed that in 2002, and we managed to get them in 2014 to agree that, if commonhold could be shown to work, they would agree to a sunset clause that would say, “You cannot build leasehold properties after x date in the future.” I think that that is a viable system.

 Earlier in the Committee hearing Barry Gardiner, MP for Brent North, had asked about a potential right of leaseholders' right to withhold service charges:

You nicely lead me to my other question, which concerns something else that was in the 2002 Act but was never brought into effect: the provision that, if the landlord had not complied with the rules around service charges and the charges were unfair, leaseholders should be able to withhold their service charge. I have no idea why that was never brought into effect, but would it be a good idea? The Bill sets out extensive obligations that have to be followed in relation to service charges. If those are not followed, should leaseholders have the right to withhold the service charge?

Martin Boyd replied:

 I can tell you why it did not move forward. One of the reasons it did not move forward is that, when there was a consultation, the organisation that I now chair argued very strongly against the implementation of that section. That was one of the things that annoyed me when I found out about it over a decade ago. It is not something that we would argue for now.

Asked by Gardiner if this would be a good clause to insert into the Bill, Boyd replied,  'It was a very good provision, yes.'

 

CMA: Mis-selling or unfair contract terms on leasehold homes will not be tolerated.

In the light of our recent coverage of leasehold issues in South Kilburn and the number of new developments across Brent it is welcome that the Competition and Markets Authority is opening enforcement cases against developers.  Please note that apart from the named developers letters are also being sent to others.

This is the CMA's Press Release issued yesterday:

As part of its ongoing investigation, the Competition and Markets Authority (CMA) is today opening enforcement cases focusing on certain practices of:

• Barratt Developments
• Countryside Properties
• Persimmon Homes
• Taylor Wimpey

The move comes after the CMA uncovered troubling evidence of potentially unfair terms concerning ground rents in leasehold contracts and potential mis-selling. It is concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers.

The CMA’s action relates to the following areas of concern:

Mis-selling

• Ground rents: developers failing to explain clearly exactly what ground rent is, whether it increases over time, when increases will occur and by how much.
• Availability of freehold: people being misled about the availability of freehold properties. For example, the CMA found evidence that some people were told properties on an estate would only be sold as leasehold homes, when they were in fact later sold as freeholds to other buyers.
• Cost of the freehold: people being misled about the cost of converting their leasehold to freehold ownership. When buying their home, the CMA found evidence that some people were told the freehold would cost only a small sum, but later down the line the price had increased by thousands of pounds with little to no warning.
• Unfair sales tactics: developers using unfair sales tactics – such as unnecessarily short deadlines to complete purchases – to secure a deal, meaning people could feel pressured and rushed into buying properties that they may not have purchased had they been given more time.

Unfair contract terms – ground rents

• The use of unfair contract terms that mean homeowners have to pay escalating ground rents, which in some cases can double every 10 years. This increase is built into contracts, meaning people can also struggle to sell their homes and find themselves trapped.

 

Alongside these issues, the CMA will also be looking further into ground rent increases based on the Retail Price Index (RPI) and may take enforcement action should it find evidence of unfair practices in relation to these. In particular, the CMA is concerned about the fairness of escalating ground rent terms linked to RPI and that these are not always effectively explained by developers when discussing RPI-based ground rent with prospective homeowners.

 

The CMA will also be investigating certain firms who bought freeholds from these developers and have continued to use the same unfair leasehold contract terms.

 

The CMA has now written to Barratt, Countryside, Persimmon, and Taylor Wimpey outlining its concerns and requiring information.

 

How the case proceeds will depend on the CMA’s assessment of the evidence. Possible outcomes include legal commitments from the companies to change the way they do business, or if necessary, the CMA could take firms to court.

 

Andrea Coscelli, CMA Chief Executive, said:

It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action.

Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated.

 

Alongside its enforcement action, the CMA is also sending letters to a number of other developers, encouraging them to review their practices to make sure they are treating consumers fairly and complying with the law.

 

For people who own, or are looking to buy, a leasehold property, the CMA has produced written and video guidance, which offers advice on a number of issues, including what people can do when faced with fees and charges they consider unjustified.

 

The CMA will continue to work with the Government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.

 

Brent Council and L&Q Homes respond to the South Kilburn scandal

Well done to  Adam Shaw, the local democracy reporter on the Ealing Times in getting a response to the issues raised by Lucie Gutfreund about poor conditions at her South Kilburn home in a guest post on Wembley Matters over the weekend HERE.

The full report in the Ealing Times can be found HERE but this is a summary of the responses from L&Q Homes and Brent Council:

L&Q apologised for any inconvenience caused by the building issues at the new homes and said improvement works are ongoing, with the communal garden set to be reseeded in October. 

A spokeswoman for L&Q added it would meet with some residents over a recent £650 increase to charges, which it said were brought on by an undercharge by energy provider EDF and council ground rent costs. 

On the cladding issue, she said: “Unfortunately, as we own so many buildings affected by the Government guidance on fire safety, we’re not able to inspect, test, and then carry out works on them all at once. 

“Instead we must prioritise our buildings based on risk. Our highest risk buildings, defined by height, occupancy and building materials, among other factors, will be inspected first.”

She added the group is “already responding to an enquiry from residents about the building materials used in the construction of this property”. 

Cllr Eleanor Southwood, who is responsible for housing and welfare reform at Brent Council, said it is in contact with L&Q and is writing to residents to make them aware of how they can put forward complaints or concerns.

She said: “I’m really sorry that these issues persist and understand residents’ frustration. 

“It’s incredibly important to us that people feel safe and secure in their homes and we expect all registered providers operating in the borough to meet residents’ expectations of them.”