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Leasehold system flawed and exploitative, says MPs

Cherry Reynard
Written By:
Cherry Reynard

The flawed leasehold system in the UK leaves leaseholders at risk of exploitation by developers, freeholders and managing agents, says a new report from the Housing, Communities and Local Government Committee (HCLG)

The report, from a committee of MPs, said the system was in need of urgent reform, with householders in unsellable and unmortgageable homes.

It added that processes for invoicing service charges and renewing leasehold needed to be made simpler, demonstrate value for money and provide greater transparency to leaseholders.

It says the Competition and Markets Authority (CMA) should investigate mis-selling claims and proposed a cap on ground rents of 0.1% of the present value of a property, up to a maximum of £250 per year.

At the same time, the report recommended that where possible, leasehold shouldn’t exist: “The Government needs to ensure that commonhold becomes the primary model of ownership of flats in England and Wales.”

“Steady income for developers”

Clive Betts MP, Committee Chair, said: “Buildings require effective management to ensure they are kept up to a sufficient standard of repair, but to spread responsibility for covering the costs. Yet in too many cases, leasehold has failed to do this, and acted primarily as means of providing a steady income for developers, freeholders or managing agents.

“In the worst cases, people have been left trapped in unsellable and unmortgageable homes, needing permission or having to pay high fees for even minor cosmetic changes. More common are opaque service charges and poor levels of maintenance, with no reasonable means for leaseholders to challenge or query how their buildings are managed. Financially, the buck always seems to stop with the leaseholders and there is little they can do about it.”

Betts said there were some practices that should stop outright. In particular, there is no reasonable case for a house to be sold as leasehold. Equally, financial incentives to use preferred solicitors raised “serious questions of a conflict of interest”. In other areas, such as ground rents, service charges and dispute mechanisms, he said the Government needs to tip the balance back towards leaseholders.

Government figures suggest there were 4.2 million leasehold properties in England in 2015-16.