“A money making scam” – Leasehold reform passed second reading in Parliament

The government has bullishly outlined its approach to leasehold reform through 3 hours of discussion and debate as the Leasehold and Freehold Reform Bill passed through its second reading in Parliament. 

As a succession of MPs aired their own constituent’s views, Housing Minister Michael Gove responded by saying he “couldn’t agree more” with the assertion that leasehold is “just a cynical money-making scam”.

“Some people own a house but are required to pay an admin charge to change the flooring or have a pet, so it does not feel as if they own it. I can understand the flooring thing if they are in flats, but not if they are in houses. It is just a con.”

Said Mark Tami, Labout MP for Alyn and Deeside.

The bill is a “full-on assault on leasehold’s income streams” said Gove who reinforced the intention to include an amendment to the current bill to ensure that there is a ban on new leasehold homes after the first draft was released without the clause banning new leasehold homes.

“…but as well as averting that (banning leasehold) problem in the future, we are attempting to deal with the difficult situation we have all inherited. We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends. That will mean the effective destruction of the leasehold system.”

One solution to leasehold reform is a commonhold tenure. When asked directly whether reform should implement commonhold Gove replied

“I actually agree that commonhold is the ideal form of tenure, but there are certain technical questions about when commonhold can apply, not least if a building also has commercial uses on the lower floors.”

Shadow Housing Minister Angela Rayner responded saying that a Labour government would make commonhold the “default tenure” for all new properties as part of a fundamental reform of leasehold. Matthew Pennycook, Labour MP for Greenwich and Woolwich went on to say that any decision to not implement commonhold was a “political choice:”

“all the work has already been done on commonhold, so it is not a matter of complexity; it is a political choice on the Government’s part not to introduce commonhold provisions in this legislation.”

The Leasehold and Freehold Reform Bill proposes, amongst other things, to make it easier for leaseholders to purchase their freehold and remove the current requirement to have owned the leasehold for 2 years before extending the lease; make it easier for leasehold information to be obtained to make sales easier, including greater transparency over service charges; extend standard lease terms to 990 years for houses and flats, with greater powers for freeholders to take over the management of their property should they wish; rebalances the costs associated  with leaseholders challenging their landlords’ “unreasonable charges” at Tribunal.

It is expected a clause banning the sale of new leasehold property will be added as it passes through Parliament. The bill now moves to committee stage for further scrutiny.

The debate did not address compensation for freeholders which trade body the Residential Freehold Association (RFA) has said could cost the government much as £31bn, warning that pension holders, charities and other institutions that receive ground rent income from their investments in freeholds could, and would, seek compensation from the Government.

Meanwhile conveyancers await progress with bated breath. One comment on Today’s Conveyancer said lessons must be learnt from the implementation of the Building Safety Act:

“Let’s hope we don’t end up with another fiasco like the Building Safety Act. Market will come to standstill if this is not done properly.”