Communities Secretary James Brokenshire has unveiled a new industry pledge to stop leaseholders becoming “trapped in unfair deals”.
More than 40 developers and freeholders have already signed the government-backed pledge, which commits them to doing away with ‘doubling clauses’, which can result in ground rents soaring exponentially.
The freeholders who have signed have committed to changing the terms of leases for those who are affected. Other industry bodies such as managing agents have also put down their names.
Ministers have also announced plans to close the legal loopholes that force leaseholders to pay “onerous” fees when they take their freeholders to court over service charges – this includes consultation with industry on whether these changes should apply to existing leases.
Under current rules, leaseholders who wish to take their landlords to court to challenge fees or hikes in annual charges also run the risk of being forced to pay their landlord’s legal fees.
It is hoped scrapping the loophole will reset the relationship between freeholders and leaseholders.
Commenting on the pledge, Communities Secretary James Brokenshire said: “Since becoming Communities Secretary, I have repeatedly made clear my ambition to end those exploitative and unfair leasehold arrangements that have no place in a modern housing market.
“The new industry pledge – signed by leading freeholders and property developers – will further support existing and future leaseholders by protecting them from onerous fees.
“It’s great news that leading names such as Taylor Wimpey and Barratt Developments have already signed up to the pledge, and I want to see others who have not yet signed up do the right thing.”
However, Housing Communities and Local Government Committee Chair, Clive Betts MP wasn’t happy with the announcement: “It is disappointing that the Government has not yet taken a more vigorous approach to tackling the serious failures in the leasehold system.
“Despite the catalogue of problems highlighted in our report, they have chosen to trust the developers and freeholders who created these onerous leases in the first place to decide how to make the system fair.
“Given the evidence we heard from leaseholders during our inquiry, we know it will be difficult for them to trust developers and freeholders to deliver on such pledges anyway.
“The Government’s approach to ground rent is a particular concern. There is no inherent value to this system, which in the worst cases prevents leaseholders from renewing a mortgage or selling their home. This is not about doubling ground rent alone, and there are plenty of examples of RPI-based mechanisms having the same effect, particularly where ground rents increase above 0.1% of the value of a property.
“The Government should accept this and ensure that ground rents are capped at an affordable rate through legislation.
“We do, however, welcome that the Government has accepted our recommendation to prevent freeholders from recovering their legal costs through the service charge, even when they lose.
“This will go some way towards alleviating the risks to leaseholders in bringing service charge, or other, challenges to tribunal.”
Housing Minister Heather Wheeler MP added: “We want to make sure we have a leasehold system where people are able to challenge exorbitant rates and high service charges.
“It is unacceptable that the burden of legal fees – potentially running into tens of thousands of pounds – is preventing people from seeking justice.
“The plans announced today will stop leaseholders from picking up the tab for unjustified legal costs – creating a housing market that truly works for everyone.”
Richard Silva, Executive Director of Long Harbour, also commented on the pledge, saying: “This pledge is a crucial first step towards positive change in the residential leasehold market, and it reflects our commitment to eliminating bad practice from the market.
“And to further protect leaseholders from excessive costs, older people and their families will be better protected across the retirement sector from unfair fees – sometimes called ‘event fees’ – charged in some leasehold retirement properties, where owners are required to pay extra charges when they become ill or die.
“The measures announced today will stop older homeowners and their families being hit with surprise fees when they may least expect or be able to afford it, often when they are at their most vulnerable, such as following the illness or death of a loved one.”
Stewart Baseley, Executive Chairman of the Home Builders Federation, said: “The home building industry is committed to ensuring that leasehold is used appropriately and remains a safe and secure tenure for homeowners.
“This pledge is a further demonstration of the industry’s intent to provide homebuyers with clarity, transparency and security ensuring that when used, the terms and conditions of leases are fair and proportionate.”
Options are being explored to close the legal loophole and ministers will announce next steps in due course.
Pledge signatories include:
- Aquinna Homes
- Association of Residential Managing Agents (ARMA)
- Aviva Investors Global Services Limited
- Barratt Developments
- Bewley Homes
- Bovis Homes
- Churchill Retirement
- Consensus Business Group
- Countryside Properties
- Croudace Homes Group
- Davidsons Developments
- E & J Estates
- Estates & Management Limited
- Fairview New Homes
- Galliford Try
- Ground Rents Income Fund Plc
- Home Builders Federation (HBF)
- Homeground Management Ltd
- Landmark Investments
- Lioncourt Homes
- Long Harbour Ltd
- Mainstay Group Limited
- McCarthy and Stone
- Mears New Homes
- Miller Homes
- Millgate Developments (part of the Countryside Group)
- Morris Homes
- Nicholas King Homes
- Octagon Developments
- PegasusLife Group
- PGIM Real Estate
- Redrow Homes
- Royal Institution of Chartered Surveyors (RICS)
- Spitfire Bespoke Homes
- Modwen Homes
- Stewart Milne Group
- Taylor Wimpey
- Telford Homes
- Wallace Partnership Group Limited
- Wates Developments