Tackling unfair practices in the leasehold market

Transcription

1 The British Prperty Federatin 1. The BPF represents the cmmercial real estate sectr. We prmte the interests f thse with a stake in the UK built envirnment, and ur membership cmprises a brad range f wners, managers and develpers f real estate as well as thse wh supprt them. Their investments help prvides essential infrastructure and create great places where peple can live, wrk and relax. 2. The UK s cmmercial real estate sectr cntributes abut 5.4% f GDP, and directly emplys 1 millin peple, r 6.8% f the labur frce. It prvides the natin s built envirnment and is diversifying frm its cre investment in the natin s ffices, shps, leisure facilities and factries, t supprt the new ecnmy thrugh investments in lgistics, healthcare, student accmmdatin, infrastructure, residential and increasingly thrugh Build t Rent investment in new husing. 3. As part f the Gvernment s Husing White Paper, we were pleased t see the inclusin f recmmendatins t prmte transparency and fairness fr leasehlders. Leasehld has lng frmed part f the husing, but as nted in the Paper, purchasers f new leasehld prperties are nt always fully aware f the assciated csts f ding s. The BPF has lng champined the case fr fairness and transparency and whilst the leasehld cnstitutes an imprtant part f the industry, it is aware that changes are needed t ensure that it cntinues t remain a viable ptin fr buyers. 4. There clearly has been a prblem with leasehld huses and the extent t which purchasers f thse prperties are aware f what they are buying, in sme cases believing they were buying freehld prperty. In cmbinatin with sme leases that have been structured with rapidly escalating grund rents, it has created cnsumer detriment and that needs t be tackled as sn as pssible. Such a state f affairs, hwever, is nt indicative f whlesale failure f the wider leasehld system, which has generally perated withut such illeffects ver decades. 5. Onerus grund rents have als led t sme head-scratching amngst ur members. The attractiveness f grund rents t pensin funds lies in their stability and predictability ver lng perids. A rapidly escalating grund rent is by its very nature unstable and runs cntrary t the reasns why pensin funds wuld a want t invest in this part f the sectr. 6. In the lnger term, we supprt the Gvernment in cnsidering hw t revive cmmnhld and we will be cnstructive cntributrs t that bjective. We hpe that it will frm ne f the prjects in the Law Cmmissin s 13 th Prgramme f law refrm. It is imprtant that prject is brad in remit, and able t cnsider nt just legislative amendments, but hw cmmnhld is prmted, and that will require greater incentives r disincentives if histry is nt t repeat itself. 7. A primary cncern fr us in the issues being cnsidered is whether any changes t law r practice will imprve r undermine the stewardship f buildings and places. Future generatins will nt thank us fr building stck and estates that are badly managed and maintained. It is therefre imprtant Gvernment backs any measures twards greater resident cntrl, with apprpriate utreach wrk t help residents manage their blcks well. It is als imprtant that cmmnhld wrks fr mixed use scenaris, which are cmmnplace in residential blcks, where hmes fr sale are ften mixed with varius frms f affrdable husing. It is als imprtant in the cntext f urban regeneratin, where blcks ften mix cmmercial and residential uses.

2 8. In general, ur preferred apprach t the issues highlighted in this cnsultatin, wuld be: 8.1. T ensure that cnsumers are better infrmed abut the terms and cnditins f the lease at the earliest pint in the pre-sales prcess. In the same way as when yu take ut a lan r insurance, when purchasing a leasehld hme, yu shuld be prvided with the key terms and cnditins f the lease in summary frm The sectr (in its widest sense) devises a cde f cnduct, which cvers the cnstructin f grund rents by huse builders, and n-ging management f the relatinship between the hme wner and grund rent investr Whilst we believe the sale f new build leasehld huses has reduced in number, it is imprtant that the individuals are given the pprtunity t limit the impact f nerus terms already affecting them. We believe many f the majr huse builders are nw ffering such schemes and these are supprted by the investrs t whm these grund rents were sld The Gvernment cnsiders reinvigrating cmmnhld via a Law Cmmissin prject and that cvers hw best t prmte its use, which may include incentives r disincentives. It als lks at whether and hw cmmnhld will wrk in a mixed-use setting We supprt many f the ther legislative and prcedural suggestins in this cnsultatin, which shuld be implemented as sn as Parliamentary time allws. We supprt parameters n grund rents, but nt their ablitin in new leases. Mving swiftly t such a psitin thrugh legislatin, culd blight hmes that are n grund rents, reducing their value and making it mre difficult fr leasehlders t btain a mrtgage n their hme. 9. We welcme the chance t respnd t this cnsultatin and lk frward t wrking with the Gvernment n develping the plicy prpsals int real actins. Fr the purpses f ur respnse, we have respnded t the brad cnsultatin themes set ut in paragraph 1.7 f the cnsultatin paper. Prhibiting the sale f new leasehld huses (with pssible exceptins where develpers are bliged t sell a huse n a leasehld basis.) 10. Leasehld has traditinally been cnsidered the preserve f flats where services and sme spaces are shared. Hwever, it can be used where there are huses. This is less cmmn, and we can see why a ban n leasehld huses therefre may have sme appeal, particularly in reactin t the abuses that have taken in place, but wrry in practice that it culd be difficult t define and implement. 11. The cnsultatin acknwledges that there are varius circumstances where the creatin f a leasehld huse wuld have t defined as an exceptin: such as garden villages r retirement villages, cmmunity land trusts and shared wnership. The cnsultatin acknwledges there will als have t be exemptins, where there is a superir lease n the land, such as where the sale f the land is a lease granted by a lcal authrity and land wned within a cathedral precinct; n Natinal Trust r Crwn land; n land wned by university bdies with the right fr future develpment; etc. 12. The cnsultatin als assumes that these are huses that have been built frm scratch. The questin remains as t whether the term new-build als encmpasses prperties that have undergne a change f use and been cnverted perhaps frm an ffice t a huse, r prperties that have been demlished and a new prperty redevelped n the existing ftprint. Clarity will be required.

3 13. As is als evident frm several high-prfile curt cases in recent years, the definitin f what is a huse fr enfranchisement purpses is by n means clear cut. The cnsultatin des attempt t prvide an explanatin n this in Annex B taking reference frm the Leasehld Refrm Act 1967, but this is largely unsatisfactry as it is nt entirely clear what type f buildings cme under that definitin. By nt having a clear definitin, the integrity f any slutin prpsed will cme int questin and as such wuld recmmend that the definitin f what a huse is, is amended. 14. Leasehld structuring is an imprtant cmpnent f develpment viability verall and withut it, many schemes wuld ptentially becme unviable, ultimately leading t a reductin in husing supply which runs cntrary t the cmmitment t increase supply as set ut in the Husing White Paper. 15. Leasehld estates have an imprtant part t play in prviding chice and flexibility thereby meeting a wide range f affrdability needs, prviding greater security arund shared services and adding t supply. In the case f retirement villages, units (huses and flats) are sld n a leasehld basis and management fees and event fees are used t prvide and maintain the additinal estate wide services that make it an attractive place t live and t encurage lder peple t mve in and free up family husing. 16. Furthermre, leasehld tenure can prvide well managed and maintained estates. This is significant with regards t estates f special architectural r histrical interest where nly a leasehld structure can ensure that these sensitive areas are managed and run accrdingly. 17. What is needed is greater availability f infrmatin fr purchasers s that they can be cnfident in what they are buying and its lng term financial bligatins. This culd take many frms including a statement f key terms r summary f the lease which culd be made available at the start f the purchasing prcess. This wuld ensure that purchasers have all the financial infrmatin available t them ensuring that they are fully aware f the verall cst f the purchase f a leasehld prperty. 18. We have already acknwledged that many f the majr huse builders are nw ffering such schemes t allw individuals t limit the impact f nerus grund rent terms and these are supprted by the investrs t whm these grund rents were sld. The ld adage f 'Buyer Beware' is simply nt a valid excuse, and the creatrs f these leases shuld take respnsibility fr them. 19. That said, it is disappinting that thse individuals affected were nt made mre aware f the terms n which they were buying such huses. It raises questins abut the rle f cnveyancing, and extent t which lwcst cnveyancers are prviding sufficient supprt t hme buyers. We wuld advcate that Gvernment reviews service standards and whether there is any way f raising standards, Pssible changes t the Help t Buy scheme in relatin t leasehld huses 20. Whilst we see this as a better alternative t legislative interventin, there wuld have t be sensible transitin arrangements s that buyers f leasehld huses that are in the prcess f being purchased d nt suddenly find supprt withdrawn. It is nt leasehld that is unreasnable, but sme f the grund rent terms that have ccurred. We wuld therefre rather see restrictins targeted at leases with unreasnable grund rent terms than all leasehld huses. As is highlighted in the cnsultatin paper, there wuld have t be exceptins in any case, where land was nly ffered n a leasehld basis, fr example, by a lcal authrity. 21. This raises a wider issue, hwever, abut the extent t which mrtgage lenders culd have a rle in helping prspective hmewners t avid unreasnable grund rent terms in leases. The prspective hmewner

4 may nt have the knwledge t knw their lease is unreasnable, but their lender shuld. A better way f plicing unreasnable leases may be via lenders, than Help t Buy. Limiting the starting value and increase f grund rents n all new residential leases ver 21 years. 22. We dn t think it is verzealus at all fr the Gvernment t be seeking a slutin t rein in the extreme edges f this t prtect lng leasehlders frm structurally depreciating assets. Equally, it is imprtant fr the sectr that substantial grund rents with nerus dubling 5, 10, 15 year review patterns (i.e. abve the rate f inflatin) are stpped. 23. What Gvernment is suggesting, hwever, ges far beynd just cracking dwn n nerus lease terms and must be weighed up against sme benefits fr: Apartment wners: S lng as grund rent levels are reasnable, having mre institutinal, prfessinal landlrds with reputatinal risk t manage must be a psitive. Als, RPI linked reviews whether 25, 15, 10 r 5 yearly, mean the cnsumer never pays any mre in real terms fr grund rent than n the day they purchased rent becmes a knwn. Develpers: The value f grund rents has assisted develpers Grss Develpment Value and therefre the additinal revenue has als assisted t make a number f schemes viable (particularly s apartment develpments and schemes in the nrth). In hindsight, it is wrth remembering that in many areas utside f Lndn and the Suth East, the hasn t been particularly easy in the last 10 years, especially fr new build cnstructin. Landwners: The additinal GDV attributable t grund rent value has aided landwners in achieving marginally higher land values. In amngst increasing develpment cst (CIL, SDLT, s.106 etc.) which have put dwnwards pressure n land prices, GRs have helped stabilise pricing t a degree. This makes it easier fr them t decide t sell and enable new husing. 24. Overall, the cuntry needs mre husing, needs landwners t sell and needs private develpers t develp. Landwners and develpers / husebuilders are nt philanthrpists (and nr shuld we expect them t be in a prfit-led free ). We need t make sure all parties are mtivated (albeit apprpriately) t keep the wheels turning. 25. We als think the cnsultatin underplays the imprtant rle that a respnsible freehlder plays. The rle f a freehlder is t act as custdian ver a blck and its cmmunal space (r husing estate with cmmunal land r facilities), a rle that is vital fr cllective lng leasehlder enjyment. This level f respnsibility shuld nt be underestimated and des require sme recmpense fr a variety and preservatin f value - what ne grund rent fund we talked t estimate as 20 separate duties. 26. Leasehlders benefit frm having a third party reputable landlrd. The landlrd has an ecnmic interest in the prperty and it is in their interest t ensure that the value f the prperty is maintained r enhanced. A prfessinal landlrd has the capacity t maintain high standards f service, as well as the knwledge and expertise t ensure leasehld cvenants are enfrced and that laws and regulatins are cmplied with. The landlrd can act as an impartial arbiter in tenant disputes. Larger landlrds (including Husing Assciatins) have the ability t btain ecnmies f scale in the purchase f services such as insurance and utilities. Landlrds als have the financial capability t step in and meet urgent capital expenditure requirements.

5 27. A third-party landlrd is well placed t manage develpments in England & Wales where the buy-t-let sectr is large, and wnership within blcks f flats is fragmented and wners are absent. 28. Institutinal wnership f residential prperty ultimately services pensin fund clients, wh in the current climate need access t stable incme returns. These investrs are acutely sensitive t reputatin and therefre keen t ensure that leasehlder s interests are prtected. Specifically, they have encuraged husebuilders away frm punitive grund rent mechanisms and t adpt inflatin linked review measures. 29. The risk in banning any future leases with mre than a peppercrn grund rent is that it starts t blight that part f the, which makes it mre difficult fr hme wners with such leases t mrtgage their prperty and sell it. 30. The prpsal t limit grund rents t a peppercrn, is als the ppsite apprach t what the Gvernment is pursuing n Retirement Husing, where greater transparency, cnsumer awareness and educatin, cupled with an industry cde f practice, is the preferred apprach. 31. We wuld therefre suggest a three-prnged apprach. Better infrmatin fr prspective leasehlders at the earliest stage f their interest in a prperty. Fr example, thrugh sme srt f key terms dcument. A cde f cnduct wrked up by the sectr (leasehlders, investrs, develpers, lenders and cnveyancers). The cde f cnduct culd gvern: The prescribed infrmatin that is required t be given t the prspective purchaser f a new lease. Sme f the prvisins within the lease that the develper creates, including strictures n grund rents. It may be pssible t develp an industry mdel lease. The n-ging relatinship between the leasehlder and wner f the freehld, regarding their cnduct. The payment f fees fr cnsents and ther requirements under the lease. Sme limitatins n what srt f level and grwth f grund rents is acceptable. 32. We believe that a cde f cnduct has a significant rle t play in helping t safeguard purchasers f leasehld prperties, whether it be huses r flats. It is nt fr the separate parts f the prperty industry t wrk disparately frm ne anther but t cme tgether and ensure that buyers are infrmed and prtected at all stages f their purchase. 33. S far as a cap n grund rents is cncerned, there is a real challenge as t what is an acceptable level in different parts f the cuntry. A cap f 0.1% was thught t be reasnable by sme f ur members, but there was agreement acrss ur membership that it wuld have t be accmpanied by a minimum abslute figure, therwise the grund rents in places like the Nrth East wuld be s small as t be unviable. An alternative wuld be t cap using sme measure f inflatin, therefre nt allwing any real grwth, but in times f high inflatin that wuld mean accepting that grwth in abslute terms wuld be als high. If the

6 Gvernment is set n adpting a percentage, detailed research n an apprpriate frmula wuld need t be undertaken, such as a sliding scale. 34. We appreciate the Gvernment faces a difficult cnundrum. Interfere, and risk thrugh the law f unintended cnsequence all the true benefits that grund rent investment bring t the (a substantial risk given the marginality f develpment against the backdrp f the husing crisis, Brexit, stagnant huse prices and general malaise) r let unfair practices in fringe s cntinue. 35. All we can d is seek t wrk cnstructively n the slutins we have suggested, which wuld benefit frm being quick t implement and cver mre grund than legislatin likely wuld. Lng leasehlders need prtectin frm bad practice which reasnable caps r limits wuld help but the custdian rle f the respnsible freehlder shuld als be recgnised. Updating Grund 8 f the Husing Act 1988 s lng leases ver 21 years with an annual grund rent ver 1,000 in Lndn and 250 utside f Lndn cannt be an Assured Tenancy Yes, we supprt this prpsal. Prviding freehlders n private estates with equivalent rights t leasehlders t challenge the reasnableness f service charges via the First-tier Tribunal (Prperty Chamber) Yes, we supprt this prpsal. Areas fr future leasehld refrm 36. There have been few pprtunities t amend prblems in practice, r in leasehld legislatin, since the passing f the 2002 Act, and assciated regulatins. 37. We remain willing t wrk with Gvernment n reviving cmmnhld, and have set ut sme f the issues that are imprtant t ur members in that respect, in ensuring estates and buildings can be assured t be well managed, particularly in mixed use settings. 38. We have als highlighted the grey area that still exists ver what is a 'huse' fr enfranchisement purpses. An absence f clarity in legislatin has led t several high-prfile curt cases. 39. The biggest issue fr ur members n residential leasehld remains refrm f the s20 prcess, which leads t a lt f additinal cst and delay t leasehlders, n what are nw minr wrks, and a lt f bureaucracy fr all cncerned. 40. Thugh nt f direct relevance, the Federatin is part f a grup f stakehlders that has made a submissin t the Law Cmmissin as part f its 13th prgramme, seeking sme refrms t cmmercial prperty leasehld law. The last significant refrm in this area was the Regulatry Refrm rder f 2003 and therefre the pprtunity fr sensible refrms is lng verdue. 41. We remain keen t wrk with Gvernment n leasehld and cmmnhld refrm. We have suggested a cde f cnduct which the industry is already in the prcess f pulling tgether a framewrk fr and as such, if yu have any further questins with regards t ur prpsals set ut in this paper, we wuld be mre than happy t elabrate n them further.

7 Stephanie Pllitt, Assistant Direct (Real Estate)