by: Mary-Anne Bowring/Telegraph
Homeowners who are trapped by expensive leasehold contracts have called on the Government to accept new proposals to reform property ownership rules. MPs from across the political spectrum and campaigners have backed a report by the Law Commission which said it should be made it easier for residents to take over ownership of buildings from freeholders. The proposals would make it cheaper for existing leaseholders in England and Wales to buy the freehold and convert it to commonhold – where ownership rights are shared by residents. There would also be major benefits for those who own properties with short leases, who would be able to extend their ownership by 990 years.
Law Effecting the Leasehold
At present, residents can struggle to get a mortgage and their homes start to lose value if their lease has fewer than 70 years to run. Experts predicted this would open up buying opportunities for property investors who are willing to buy short-lease properties and gamble on the proposals being adopted in the future. Although the Law Commission’s report was commissioned by the Government, its findings are not binding and any changes to the leasehold system will have to be floated in Parliament and passed by MPs.It was backed by the All-Party Parliamentary Group on Leasehold and Commonhold Reform Martin Boyd of the Leasehold Knowledge Partnership, which has campaigned on this issue for many years, “strongly endorsed” the report and urged the Government to implement the proposals. “For too many years landlords and other groups who make money from the leasehold system had argued there were no problems,” he said. “But the Law Commission reports make clear there are, and that reform is essential.” The report urged the Government to require all newly-built flats be sold on a commonhold basis, or to introduce an incentive for housebuilders to sell on this basis rather than leasehold. Developers have been accused of tying home buyers into expensive leasehold contracts which are managed by themselves or related companies. These can include schemes with escalating ground rents or large service charges. Under a commonhold agreement, residents jointly own the building and can appoint a third party firm to manage the communal areas, paying them directly.
These arrangements are common in many other countries. Mary-Anne Bowring of Ringley, a property management firm, said in some cases property owners could manage blocks themselves. “If there is harmony, self-managing can be an option, insurance commissions can be saved, budgets and major works plans can be set by those who want to maintain their asset value, not by an absentee freeholder,” she said. For those who have a leasehold agreement, the report proposed that residents should be able to extend their leases by 990 years.
Under present arrangements, extensions are typically for 125 years of less, which can cause mortgage issues to return within a few decades. In some cases, residents trying to extend their lease have been unable to because their leaseholders have requested a huge fee to do so. Once the lease has less than 70 years to run, property owners can see the value of their home dramatically fall. If these homeowners are able to extend their lease more easily and cheaply, the value of their properties would return to normal levels.
There has also been speculation that buyers could purchase properties with short leases, hoping that they could later extend it cheaply and benefit from increased house prices. Bruce Collinson of Adair Paxton, an estate agent, warned this would be a risky strategy as the proposals could take years to implement, if at all. “Any owner occupiers buying a home with a short lease, purely in the hope that these reforms come to fruition, would be taking a big risk,” he said. “However, investors and elderly downsizers, who are less reliant on securing a mortgage, are often less worried about lease lengths and it’s likely to be these buyers that show most interest as a result of these proposals.”
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