SLC response to the Government’s consultation on ‘Tackling unfair practices in the Leasehold market’

18^th October 2017

The Society of Licensed Conveyancers (SLC) is the professional body for the Licensed Conveyancing profession which is constituted of specialist property lawyers. Its members account for approximately 20% of all conveyancing transactions in England and Wales and the SLC provides a voice for the profession with politicians, property professionals and relevant stakeholder organisations.

The SLC has responded to the Government’s consultation on ‘Tackling unfair practices in the Leasehold market as follows:

Q5: What steps should the Government take to limit the sale of new build leasehold houses?

Legislation must be passed to prevent the sale of any new build houses as leasehold unless there are good reasons for this (eg where there is a head lease). If the developer considers it is necessary then the ground rent must be set at a peppercorn (or as determined by the headlease) and the term of the lease should be 999 years (or if there is a head lease then as long as this lease will permit). The freehold must be transferred to a management company where the leaseholders own a share of the freehold. The legislation must require all relevant details of the lease to be provided in a prominent position in all marketing documentation, including on their website. This should give full details of ground rent, and a detailed explanation as to what the service charges cover and any rent review clauses – should rent not be restricted to a peppercorn as suggested at Q9. A draft lease must be made available to the buyer before an offer is made and a deposit paid, together with a standard information sheet on how to interpret the lease setting out important information such as ground rent, and rules and regulations.

Commonhold title may be preferable although some amendments to the legislation should be considered (see Q21). Even in this situation the details of the commonhold association should be included with the marketing documentation.

Q6: What reasons are there that houses should be sold as leasehold other than under the exceptions set out in paragraph 3.2?

Houses which are built as part of a development forming an estate with common facilities such as a garden village could be sold as leasehold houses. In fact, it is beneficial to do so as a leasehold title allows restrictive covenants, positive covenants and regulations to be enforced whereas only restrictive covenants can be enforced with a freehold property (and even then with difficulty). This is particularly important where service charges are levied as it can be difficult to enforce their collection with a freehold property. (NB clause 3.1 is incorrect where it implies that restrictive covenants can be used to maintain common parts. Although it may be argued that certain rights (eg a right of way) cannot be exercised unless the user pays a share of the costs of maintenance it is difficult or impractical to enforce payment. A leasehold title carries with it a threat to forfeit the property if covenants and regulations are not obeyed, and in practice this threat is effective). However, there is no reason to set a ground rent at anything other than a peppercorn.

The important thing is that the freehold of the development is transferred to a management company where all of the lessees are shareholders and they will decide on the level of expenditure. This is a common arrangement and usually works well in practice.

Leasehold houses are only necessary where the estate has significant community land, possibly with landscaping, security measures and common parts, access ways, etc which need maintenance and repairs.

In those limited cases the standard form of lease for each type should be the objective. Currently leases substantially favour the developer which is clearly contrary to the consumer interest as currently developers refuse to deal with any amendments however reasonable.

Although leasehold title has its defects it has been tested and revised over many years and provided the original lease is well-drafted with no ground rent and a share of the freehold there are very few problems. However, it may be preferable to sell these properties as commonhold (where there is no head lease preventing this).

Q7: Are any of the exceptions listed in 3.2 not justified? Please explain

Each of these cases should be investigated further, and if it is considered necessary then a standard form of lease should be specified for each scenario. Once again commonhold should be considered.

Q8: Would limiting the sale of new build leasehold houses affect the supply of new build homes? Please explain

There seems to be a suggestion that developers are working on such small margins that they would not build as many houses if they could not sell them as leasehold. This is clearly not the case. Developers work on high profit margins; it is a high risk, high profit business. We are not aware of any evidence that houses sold with a leasehold title are sold at a discount. Developers will set the price of a house at the market price (ie the maximum that they consider the public will pay for a particular house, regardless of the title). It is very unlikely that they would take the title into account when adopting their pricing strategy. If this were the case they would openly be marketed as leasehold. Anecdotal evidence suggests that this was not the case and many home owners who have purchased a leasehold house were not aware of this until close to exchange of contracts or even after completion.

This article from March 2016 does not suggest developers are operating on small profit margins (the smallest profit was 16.9%):

http://www.buildingtalk.com/blog-entry/uk-top-developers-build-fewer-homes-to-make-bigger-profits/

Legislation must prevent the sale of leasehold houses except in certain situations. In these cases developers should be required to state in all marketing information that the property is leasehold with full details of ground rent etc. (This might be enforceable under revised consumer legislation).

Retirement Homes

The argument that retirement homes are significantly more expensive to build is difficult to sustain. Flats in these developments are smaller than normal flats and the special measures incorporated should not be very expensive when installed during the erection of the building. It is doubtful if the use of space is any less efficient than a normal development. This is reflected in the sale price of second hand retirement flats which is usually less than that of similar properties. The only exception to this is up-market retirement homes with facilities such as gymnasiums and swimming pools, etc. where the price would reflect these facilities.

We cannot see that “event fees” are justified. These are a covenant in retirement home leases requiring the leaseholder or their executor to pay a significant sum to the management company when the property is transferred or sold. These covenants should be made illegal both with new leases and existing ones.

Once again the freehold should be owned by the residents, with no ground rent. They should also be able to change the managing agent if necessary. We refer you to http://www.retiremove.co.uk/exit-fees-retirement-housing/ which refers to an OFT investigation with several recommendations which should be enforced.

The Law Commission thought they were satisfactory (just not transparent enough) stating:

“The economics of developing retirement housing depends not only on the initial sale price but also other potential income streams; – for care provision, ground rent and ‘event fees’. It is important not to interfere with those income streams in a way which discourages further supply”.

In other words, developers need the extra money as they make so little money on the build itself! This is untenable. It is an underhand practice designed to mislead unwary buyers. All their profit should be in the original sale of the homes. All other costs should be taken from service charges.

The argument put forward by developers that selling freehold houses could create a competitive disadvantage is bizarre. Are they saying that people would prefer to buy leasehold houses because they like them? The argument that this has been the custom for many years is specious. It is wrong to sell a leasehold house unless there are common parts to maintain.

The suggestion in item 3.14 of the consultation paper is untenable. The price of a house will always be set by market conditions and developers will sell for the maximum price regardless of title.

Q9: Should the Government move towards removing support for the sale of new build leasehold houses through Help to Buy Equity Loan, unless leasehold can be justified and where ground rents are reasonable (which could be a nominal or peppercorn ground rent), and if not, why not?

We see no reason why a help to buy loan should not be provided for a leasehold house provided the ground rent is nominal, preferably a peppercorn, with a term of at least 999 years and with a share of the freehold. However, all administration and consent fees must be reasonable, and determined by an external independent party or based on a national tariff. Once again commonhold should be considered, subject to response to Q5.

Q10: In what circumstances do you consider that leasehold houses supported by Help to Buy Equity Loan could be justified?

The houses must be in a development where a freehold title would not be practical as set out in our replies to Q5, Q6 and Q9.

Q11: Is there anything further the Government could do through Help to Buy Equity Loan to discourage the sale of leasehold houses? Please explain.

As in our reply to Q10

Q12: What measures, if any, should be considered to minimise the impact on the pipeline of existing developments?

Onerous ground rents on existing properties should be struck out and administration costs controlled. Leaseholders must be given the right to manage or the right to buy the freehold at a nominal price, and the right of first refusal must also apply.

Q13: What information can you provide on the prevalence of onerous ground rents? We are keen to receive information on the number and type of onerous ground rents (i.e. doubling, or other methods) and whether new leases are still being sold with such terms.

We cannot readily provide any further evidence on the prevalence of onerous ground rents other than that which is already in the public domain and in particular discussed by the All Party Parliamentary Group. However, we hope to be able to provide specific information from our members at a later date.

Q14: What would a reasonable ground rent look like, in terms of i) the initial annual ground rent, ii) the maximum rate of increase in annual ground rent, and iii) how often the rate of increase could be applied to an annual ground rent? Please explain your reasons.

Until recently typical ground rents were set at a fairly nominal figure quite often of £10 to £50 per annum (and not increasing over the term of the lease) but over the last few years they have increased to somewhere between £200 and £300 per annum, often with a clause increasing the ground rent every 25 or 33 years. Our comments are as follows:

1. i) It is not necessary to charge any ground rent. There is an argument that a significant rent should be paid to prevent freeholders from disappearing, but this problem can be avoiding by making it easier for leaseholders to take over the freehold where there is an absentee freeholder. This is not a common situation but can cause serious problems either in terms of maintenance of the property or when a flat is being sold and no freeholder can be contacted to provide the usual information in terms of ground rent and service charges. At present a court order is necessary but this is time-consuming and expensive.

However, it could be dealt with by the Land Registry when the leaseholders involved are prepared to make a Statement of Truth to the effect that the freeholder cannot be contacted. The Land Registry could write to the freeholder at the address on the register to confirm their absence, giving them a period of three months to reply (in a similar way to a claim for adverse possession). If there is no reply then the freehold should pass to a company formed by the leaseholders (you could use the HMLR or independent body set up for this purpose, as it could be costly and complicated for leaseholders to set up a company).

The covenants and regulations in a lease are enforceable regardless of the amount of ground rent. The purchase of a freehold subject to leases has long been regarded as a (long term) investment and traded as such. This trading must be stopped as it has no place in a domestic property environment. People buy a house to live in, and they should not be subject to interference from freeholders who are only there to make money at the homeowner’s expense. This system is untenable in the 21st century.

1. ii) In all new leases the rent should not rise at all. All existing leases should be amended, by law, to prevent any increases above the RPI.

iii) It is essential to stop large ground rent increases as many home owners will find that their property is impossible to sell in the future and lenders will refuse to grant a mortgage on these properties.

Q15: Should exemptions apply to Right to Buy, shared ownership or other leases? If so, please explain.

Shared ownership leases are created with a Housing Association as the freeholder. Given that this is affordable housing then there is no justification for the freehold to be passed to anyone other than the Housing Association, with the shared ownership lease to provide for the freehold to be transferred to the tenant upon completion of the purchase of the Housing Association’s share of the property (unless the lease is restricted as to the share that can be purchased). Is it right that the amount of stamp duty payable is higher for these types of properties than a normal lease?

Q16: Would restrictions on ground rent levels affect the supply of new build homes? Please explain

As set out in our reply to Q8 we do not believe that restrictions on ground rent levels will affect the supply of new build homes. Property developers work on large profit margins and any losses they suffer by not being able to collect ground rents or selling freeholds would be minimal.

Q17: How could the Government support existing leaseholders with onerous ground rents?

At the very least the Government should apply pressure to all those developers who have sold leasehold houses with onerous ground rents. A list should be published of all those developers who have sold leasehold houses with details of the ground rents and any other relevant data and these developers should be encouraged to reimburse all those who have suffered as a result of this practice. The developers should either give the freehold to these people or where this cannot be done they should offer to purchase the property from the owners at the current market price as if the property were freehold.

However, we cannot see that developers would willingly agree to the above and if they did who would monitor progress? Legislation is necessary and this should reduce ground rents to zero and give every leaseholder the right to manage if they are not given the freehold.

Q18: In addition to legislation what voluntary routes might exist for tackling ground rents in new leases?

If legislation is put in place then we do not consider that any voluntary routes would be necessary, other than perhaps marketing information if it is considered that a leasehold title is necessary.

Legislation is essential as we do not consider that any voluntary routes would exist for tackling ground rents in new leases as developers are simply motivated by maximising profits and it is very unlikely that all developers would conform to any voluntary code. Developers are not noted for their philanthropy.

Q19: Should the Government amend the Housing Act 1988 (as amended by the Housing Act 1996) to ensure a leaseholder paying annual ground rent over £1,000 in London or over £250 in the rest of England is not classed as an assured tenant, and therefore cannot be issued with a Ground 8 mandatory possession order for ground rent arrears? If not, why not?

It was clearly not the intention of the Housing Act 1988 to reclassify long leasehold properties as assured tenancies and the Act should therefore be amended to prevent this.

Q20: Should the Government promote solutions to provide freeholders equivalent rights to leaseholders to challenge the reasonableness of service charges for the maintenance of communal areas and facilities on a private estate? If not, what management arrangements on private estates should not apply?

The Government should legislate to provide freeholders with equivalent rights to leaseholders to challenge the reasonableness of service charges for the maintenance of communal areas and facilities on a private estate. Otherwise the Government should consider legislation to ensure that in future all properties where there are communal facilities should be sold as commonhold (or leasehold with a share of the freehold).

Q21: The Housing White Paper highlights that the Government will consult on a range of measures to tackle abuse of leasehold. What further areas of leasehold reform should be prioritised and why?

We would like to emphasise that although the scandal of leasehold houses with onerous ground rents urgently needs to be addressed there are many other abuses of the leasehold system taking place on all leasehold properties, not just houses. Many of these relate to excessive routine charges for administrative and management costs and flat owners are reluctantly paying these in order to avoid forfeiture, or in order to facilitate a sale. This is a widespread issue and needs to be dealt with. In a survey carried out by LEASE 57% of those surveyed regretted buying a leasehold property, 40% of leaseholders strongly disagree that service charge is value for money and two thirds do not feel they get a good service from their managing agent. This is clearly an unacceptable situation.

Improving Commonhold

There have been comments that the commonhold system has not been adopted because it has inherent flaws. This is incorrect as the only parties responsible for deciding the title to new properties are developers. There are two reasons why they would not wish to sell properties with a commonhold title:

1. i) Apart from the loss of income they would incur additional legal fees in drafting the necessary legal documentation and training sales staff. Although this is a one-off cost, from a developer’s point of view it is unnecessary. It might also cause delays and complications during the conveyancing process as not many conveyancers are familiar with commonhold. With so few properties having been granted commonhold title there is no incentive for training.
2. ii) It was envisaged that developers would find a commonhold title advantageous from a marketing point of view. This was very optimistic as very little publicity was given to the new class of title and it is doubtful whether a significant percentage of the public were aware that it existed. Again, why would developers take the risk?

At first sight the commonhold system is attractive but there is little, if any, case law to show how robust it is and it is said to have several drawbacks which need to be addressed, and we believe that as it stands some lenders are reluctant to lend on commonhold titles.

In a leasehold situation a freeholder can forfeit a flat (or house) if a leaseholder does not obey the regulations in the lease and pay their service charges (if the freeholder takes the leaseholder to court they can repossess the property in its entirety, leaving the leaseholder with a mortgage and no property). It is often the threat of forfeiture that makes them pay. Furthermore, the lenders are aware of this and if a freeholder or managing agent informs the lender that service charges are outstanding and there is a possibility of forfeiting the lease the lender will pay the charges and add the cost to the mortgage.

Both commonhold and leasehold with a share of the freehold have a basic flaw in that if the community association or the freeholder become insolvent there is nobody to carry out maintenance. This is very unlikely with a large development, but can be a problem where only a handful of properties are involved and no returns are made to Companies House, the company then being struck off. In the case of a leasehold property the freehold would revert to the Crown and presumably the same would be true for a commonhold property. The land could be claimed back but this is a lengthy process and expensive in terms of lawyer’s fees. However, this could be rectified with the appropriate legislation. Alternatively, a new form of title could be agreed where the freehold is owned by a trust comprised of nominated leaseholders and a head lease granted from the freehold. Presumably this could also be made to work for commonhold.

To summarise, there is no great advantage in a commonhold title but it may be easier to improve it and a revised commonhold would probably be acceptable and more appealing from a political point of view as it would not then be necessary to explain to the public that the leasehold system would be satisfactory if it is revised sufficiently (which could be difficult).

Managing agents

There is a great deal of variation in how managing agents operate. Many are inefficient and a significant number do not operate in accordance with the law.

The problems are not just confined to managing agents as there are many properties where the freeholder acts as managing agent and the same problems apply. There are many abuses of leasehold titles both by freeholders and managing agents; some of these are deliberate and some are due to ignorance.

Many freeholders and managing agents take advantage of the fact that most leaseholders are not aware of their rights (despite the result of the survey carried out by LEASE suggesting that 52% of leaseholders consider that they know their rights – this is highly unlikely when the law has been changed many times in the last 50 years and the legislation runs to hundreds, if not thousands of pages – even lawyers struggle to keep up.). Furthermore, very few leaseholders know that the First Tier Tribunal (Property Chamber) exists. Even where they do know, the costs and complexity will deter most leaseholders from taking action. Also, the fact that in most cases the outcome is unpredictable will mean that the percentage of leaseholders taking action in the Tribunal is minimal.

Several steps are necessary to improve the situation.

1. i) Buildings insurance policies need to be standard to comply with CML requirements. It may be possible to obtain cooperation with the insurance industry to ensure this and it would be incumbent on the managing agent to ensure that such a policy is put in force. At least three quotations should be obtained at each renewal.
2. ii) A list of charges must be produced such that freeholders and managing agents are obliged to stick to these costs. There must be a standard cost for all items which do not vary between leases, such as producing a deed of covenant, accepting notice, providing consent to alterations, etc. If they do not adhere to these costs an application to the First Tier Tribunal should be straightforward and not capable of being challenged by the freeholder or managing agent, unless there are extenuating circumstances. There must also be standard documents agreed to prevent unnecessary correspondence and costs.

iii) Time limits must be fixed for the production of documents when requested and provided free of charge if delivered outside of the time limit.

1. iv) The existence of the First Tier Tribunal must be more widely publicised. There should be a reference to it in the standard documentation that all freeholders and managing agents currently have to send out with service charge demands. (The Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007)
2. v) The First Tier Tribunal must be made easier for leaseholders to access with minimal costs and the ability to levy substantial fines when the law has not been adhered to. We suggest that a limit is placed such that where the disputed sum is less than £1,000 there is little or no cost to the leaseholder. A lower limit could be incorporated to prevent trivial complaints. There must also be a limit to the costs payable by a leaseholder when they lose a case.

We also suggest that a simple system is set up such that an arbitrator in the Tribunal (or elsewhere) examines every case that comes forward where the freeholder or managing agent has broken the law and an enforceable ruling is made within a short period of time, say two weeks. This can be challenged by the freeholder or managing agent if they do not agree, at their cost. This system must be cheap and quick. This is particularly important when a sale is going through and there is insufficient time to go to the First Tier Tribunal. There are far too many abuses going unchallenged.

1. vi) All lease administrators, whether managing agent or freeholder (both if necessary) should be registered at the Land Registry. All management documents, including yearly accounts and insurance details should be lodged with the Land Registry and this should not be restricted to the accounts and insurance, then they could be issued to buyers on payment of a standard fee. Please see the attached list of some of the Landlords who charge a disproportionate fee, and note that some of these are Councils and housing Associations and this issue is not limited to private landlords.

Also, they could all be informed of legislation that affects them. Part of the problem is that many do not know what the correct procedures are and that they are breaking the law. The Land Registry could refer them to the Lease-Advice web site and maybe provide a summary of the important parts of the legislation when they register and possibly updates from time to time. This may be no more than a link to the Lease Advice Website or possibly others. Any information from the Land Registry is likely to be taken seriously. This could all be done electronically without too much bureaucracy.

We believe that this scheme could be implemented without a new Act of Parliament, providing the Land Registry can amend their rules accordingly.

vii) Freeholders and managing agents must be obliged to produce proper accounts in a standard format showing what income has been received from leaseholders and the actual expenditure (it is common practice for budgets to be produced when service charge demands are sent out but no record is produced of the actual expenditure, or if it is received it is not detailed enough). These accounts must be produced within three months of the end of the accounting year. There should be a standard accounting year. As mentioned earlier, the documents should be lodged with the Land Registry, with failure to lodge being deemed that no fee would be payable in these circumstances for the production of the accounts.

viii) Management and administration fees must be restricted to reasonable figures which should be specified by Parliament or an institution such as the RICS. There needs to be some flexibility in the figure for management charges as different types of properties require more or less work. However, this should be no more than 10% of the proposed expenditure not including any provision for a reserve. Where the managing agent or freeholder considers that their management fees should be increased this should require the consent of a majority of the leaseholders, but in any event the total management fee should be no more than 15%.

1. ix) The right to manage as set out in the Commonhold and Leasehold Reform Act 2002 must be made easier. As stated in the Briefing Paper the current procedure is cumbersome, expensive and unpredictable. It should not be necessary to involve a managing agent when making the initial application to the First Tier Tribunal as this is an unnecessary expense.

As Jim Fitzpatrick MP has said section 24 is “not fit for purpose”

1. x) The Redress Schemes for Letting Agency Work and Property Management Work Order 2014 is not being enforced probably because very few people know it exists and it is necessary for local authority trading standards officers to take action against the management company. They have suffered as a result of the recent cutbacks in local authority spending and this problem needs to be addressed, either by more resources or the work being allocated to another agency, possibly a licensing authority. It could be funded partly by a licence fee and partly by the fines administered.

The Act must also be extended to cover freeholders who do not appoint a separate managing agent.

1. xi) Housing Associations and local authorities should be subject to the same rules as managing agents. Although their integrity may not be in question, their transparency and efficiency can leave a lot to be desired.

Leasehold terms and Enfranchisement

There is now a serious problem with lease extensions. Many leases were granted in the 60s and 70s for a period of 99 years and these leases now need to be extended to conform to current standards and in particular to ensure that the property is mortgageable. The costs for extending these leases will usually be in the tens of thousands of pounds and many leaseholders are unable to raise such a large amount of money and it may then be difficult, if not impossible, for them to sell their property. This is clearly unacceptable: when people buy a leasehold property, they are not aware that they are buying a depreciating asset. It has always been assumed that in the long-term properties would increase in value but this is not true in some of these cases.

The problem has recently been exacerbated for two reasons:

1. i) The case of Sloane Stanley Estate v. Mundy (2016) suggests that lease extensions will cost considerably more in the future.

The basis for calculating the cost of a lease extension is controversial and more of an art than a science and this is not acceptable when large amounts of money are involved. There must be legislation to reduce this expenditure to a reasonable level.

1. ii) Until recently any lease with over 60 years to run was considered acceptable. Lenders usually insisted that the lease had at least 25 years to run after the end of the mortgage term (typically 25 years) and a buffer of 10 years was reasonable. However, in the last few years this figure has gradually increased and now leases with less than 80 years to run are considered unacceptable by many purchasers and lenders. Many flat owners who bought their property five or ten years ago on the basis that their lease was satisfactory will now have to pay substantial sums before they can sell their property.

There is a further problem with leases in general in that every lease is different and there is widespread disagreement as to what is acceptable. For example, most leases will require the freeholder to take out buildings insurance (paid for as part of service charges) but the relevant clause may not be good enough for the lenders and a deed of variation is necessary. This will be carried out at the leaseholder’s expense, assuming that the freeholder agrees but they have no obligation to do so. Furthermore, some conveyancers will take a view on what is acceptable, whereas others will insist on a deed of variation.

There are two courses of action required:

1. a) Standard leases should be mandatory, and written in plain English. The Land Registry suggested this some time ago but the legal profession considered it unworkable. However, it does need some imagination and it would be possible to agree on a standard lease for most situations, eg one for a house conversion, one for a block of flats, etc. Failing this it would be relatively easy to agree standard clauses, eg “no structural alterations without the freeholders consent”. The lease should be written in a manner that is not substantially biased towards the landlord.

New Properties

With new build properties there is an inherent problem in that when the conveyancing commences it is standard practice for the seller’s conveyancer to send out a draft contract to the buyer’s conveyancer with a copy of the proposed lease with a covering letter stating that under no circumstances will any amendments be accepted as all leases in the development must be the same. This is generally seen as good practice as the buyer’s conveyancer needs to know that all the other leases will have the same restrictions and regulations as his or her client’s lease. However, it does mean that items such as ground rents, etc are not negotiable. The buyer’s conveyancer must therefore report to his or her client informing them that these terms are fixed.

At this stage the buyers have mentally committed to the purchase; they will have spent a considerable amount on legal fees, searches and mortgage arrangement fees and may have a related sale transaction at an advanced stage so they are unlikely to withdraw unless the lease has really onerous clauses. This is all the more problematic as the buyers are usually near to exchange of contracts and under considerable pressure to complete (developers usually set a rigid timescale for exchange of contracts). The effect of this situation is that the buyers have little or no bargaining power. Once completion has taken place the terms of the lease are held to be fixed for the term of the lease. This is in direct contravention with the established rule in contract law generally in that where one party has much greater power than the other then they must ensure that no unfair terms are incorporated into the contract, or it may be unenforceable. This was common law for some time and incorporated in the Unfair Terms in Contract Act 1977 and Consumer Rights Act 2015. A similar law could be drawn up to give all leaseholders similar rights, and it needs to be retrospective.

It should be possible for leaseholders and freeholders to change the lease without any costs to the leaseholder where a simple error has been made when the lease was drawn up. For example, where a right of way has been left out when it is obviously necessary to reach the property. There is already case law granting a right of way in similar situations for freehold properties but even this is not straightforward. In a leasehold situation it should be easy to confirm the right of way without tedious and time-consuming correspondence between lawyers.

One of the problems with modern leases is that they are now typically 30 or 40 pages long (often longer) and clients find them very difficult to understand. The conveyancer will report to the client on the terms of the lease, highlighting any important terms, such as the ground rent, but the client must read the lease to make sure that they are happy with all the restrictions on the use of the property. These are usually fairly straightforward such as not making a noise after 11 pm, but some can be unacceptable to certain clients, eg no pets, or no alterations. It is important that the client reads these but we suspect that very few actually do. Most will probably give up on the first page. Standard leases would deal with this by setting out the covenants and regulations separately using plain English.

Enfranchisement

Recent cases in the media have highlighted the fact that leasehold houses are not covered by the Landlord and Tenant Act 1987 as amended by the Housing Act 1996 that requires a freeholder to consult the leaseholders before selling the freehold if the properties are flats. This clearly needs amending to cover houses as well. The two-year period for enfranchisement also needs to be abolished; we can see no logic for this.

General

Where a compliance certificate from the management company is required for the Land Registry and the conveyancer is unable to obtain this from the relevant authority, the conveyancer should have an option to inform the Land Registry that the terms of the restriction in the register have been complied with and the Land Registry will then be obliged to register the transfer or other disposition.

Another point which needs addressing is the prospect of many leaseholders finding they own a property they cannot sell because the lenders requirements are constantly changing meaning that a lease which was acceptable when they purchased is not acceptable when they come to sell requiring them to obtain a deed of variation from the freeholder which can be expensive. There must be a right in law to rectify existing leases where lenders consider them unacceptable, at no cost to the leaseholder.

When any leasehold property is put on the market full details of the lease must be available to prospective buyers. This includes ground rent, any review clauses and the term of the lease. In most cases a copy of the lease can be downloaded from the Land Registry so any estate agent can obtain this and keep a copy in the office or email it to the buyer if they are not confident that the information they have received from the seller is accurate.

Conveyancing

One aspect which has not been specifically requested by the consultation process is the effect leasehold problems have on the conveyancing process. However, the Government has stated that they wish to take action to improve the property sale and purchase procedure, and leasehold problems are a major factor in this process. Problems with managing agents or freeholders are often ignored by leaseholders because they do not inspect the accounts or do not consider it practicable to challenge them or they are not aware of any problems, but when the property is being sold the buyer’s conveyancers will raise enquiries which will bring these issues to light and they will refuse to continue until the problems have been dealt with.

There may be defects in the lease (leases written in the 60’s and 70’s was often poorly drafted by modern standards), disputes about service charges, and in particular the length of the lease. If the buyer’s conveyancer insists that the lease is amended or extended this can cause a delay of several weeks or even months whilst the negotiations and legal work take place. The seller can be exploited by the freeholder, who will require excessive costs or fees, as they know the seller cannot proceed without the amendments or a longer lease. There is no time to take the matter to the First Tier Tribunal and the terms of the lease will be negotiated in correspondence. The terms of the new lease or deed of variation may not be good (eg ground rent may be increased) but have to be accepted in a situation where buyer and seller (and others further up the chain) are desperate to exchange and complete. The Government has pledged to take action to speed up the conveyancing process and this is one area where action would be very beneficial. The Land Registry figures show that 60% of properties in London are leasehold and since many of these are sold by people who are moving up the housing ladder there will be a chain of transactions. It is therefore likely that a great deal more than half of all transactions are likely to be delayed by leasehold problems.

The conveyancing process needs a complete overhaul but the above improvements could make a significant difference, particularly if leasehold information was held at the Land Registry. We would also recommend that an information pack is prepared as soon as the property is marketed, so that it is available to prospective purchasers and ready to send to the buyer’s conveyancer as soon as an offer is accepted.