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Published 15 January 2018
On 21 December 2017 the Department for Communities and Local Government released its formal response to its consultation aimed at tackling unfair practices in the leasehold market.
But what of the difficulties currently being faced by those already locked into long leasehold interests containing what are now considered to be 'onerous' terms? Rather than legislation with retrospective effect, the Government proposes to help consumers access justice to ensure they are 'compensated where compensation is due'.
The response is not unexpected and confirms the direction of travel clearly sign-posted in the consultation paper issued last summer. Much will be widely welcomed by consumers, although there will not be any quick fix for those already stuck with onerous leasehold terms.
In this regard the Government proposes to "work with the redress schemes and Trading Standards to provide leaseholders with comprehensive information on the various routes to redress available to them, including where their conveyancer has acted negligently. We will also work with the Law Commission to consider whether unfair terms apply when a lease is sold on to a new leaseholder".
It will be extremely interesting to see how this unfolds. Claim management companies have already been busy touting for business from those affected and clearly do not need any encouragement, but a clearly defined redress scheme may take the wind out of their sails if it dispenses with the need for legal representation for those seeking compensation. This is something that property professionals and their PI Insurers should watch closely in the coming months as further details emerge.
Secretary of State Sajid Javid said the response showed that "real action is needed" to bring an end to what he regarded to be practically feudal and totally unjustified practices. Various measures, from the introduction of legislation as soon as Parliamentary time allows through to Law Commission consultation, are proposed.
The response contains a range of measures which include a plan to introduce legislation to prevent the sale of new build leasehold houses, subject to certain exceptions, and to ensure that in the future ground rents on newly established leases of houses and flats are set at zero. The Law Commission will also be tasked with consulting on and introducing a prescribed formula to make it easier for leaseholders to exercise their rights to buy freeholds or extend their leases. Action is also promised to stop leaseholders being classed as assured tenants simply based on the levels of ground rent being paid.
The Government has confirmed that it will:
There is, however, nothing concrete (beyond the above referred encouragement that developers should do more) for those who find themselves with leases which contain onerous terms, principally in the form of rapidly rising ground rents which can, over the term of the lease, spiral to unacceptable levels.
In addition to this encouragement, the Government merely promises to work with the redress schemes and Trading Standards to provide leaseholders with comprehensive information on the various routes to redress available to them, including where their conveyancer has acted negligently. It will also work with the Law Commission to consider whether unfair terms apply when a lease is sold on to a new leaseholder.
Precisely what this envisages remains to be seen.
In the past year there has been increasing unease that property professions may face a large number of claims resulting from allegedly inadequate advice to those purchasing such leasehold interests. As previously reported, at least one major house builder has created a compensation fund but that has not yet been copied by the entire sector. In addition, a number of companies which have previously acquired ground rents are approaching leaseholders offering to revise the ground rent clauses to link uplifts to RPI, but this is also not something which applies throughout the sector.
How these gaps are plugged remains to be seen and it would be unfortunate, to say the least, if potential professional exposures turned on nothing more than a 'luck of draw' principle, dependent entirely upon whether their house builder or current ground rent owner offered to resolve the problem voluntarily.
Click here to view the government response in full.
+44 (0)113 251 4760
+44 (0) 117 918 2289
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