How the Leasehold and Freehold Reform Bill will hurt the public

The Government is fumbling a once in a generation opportunity to reform the leasehold sector. 

Instead of listening to the evidence and addressing the very real concerns of leaseholders, the Government have put forward legislation that will actually make things worse for flat owners.

The proposals in the Leasehold and Freehold Reform Bill will take a wrecking ball to property rights and pension fund investments – and could mean a multi-billion-pound bill for the taxpayer.  By contrast the regulation of the industry to remove bad actors is straightforward and would do much to improve standards and the lives of residents.

Read below how different groups representing millions of people in England and Wales are set to be negatively impacted by the Government’s reforms:

  • £15 BILLION Pensioners’ savings wiped out
  • £27 BILLION Costs for taxpayers
  • rethink The Bill
  • reform Leasehold without the risk

Pension-holders

Pension funds invest in ground rents because they have been a stable investment that helps support people’s pension pots steadily over time.

The Government’s proposals within the Bill and consultation would reduce the value of ground rents, potentially wiping out £15 billion pension funds have invested in them.

In some cases, individual pension-holders stand to lose tens of thousands of pounds they have saved for retirement.

The Government’s Bill is an unprecedented abuse of property rights – effectively amending contracts retrospectively. In doing so, the Government is plundering pension savings and passing the value to other parties, many of whom are wealthy buy-to-let investors (in London this number exceeds 60%). [1]

pension-holders’ Solution

A reset for all rapidly escalating ground rent could be introduced to guarantee that no ground rent ever increases in real terms and leaseholders are further protected in periods of high inflation by an inflation cap.

Leaseholders

If ground rents are reduced to zero or the Bill as drafted is introduced, investors and professional freeholders will be forced into liquidation and out of the residential property market. 

The absence of responsible professional freeholder in large, complex apartment buildings will have serious consequences, including an inability to sell or obtain mortgage finance (as no lease counterpart will exist).

Either Freeholds will be acquired by investors with short-term interests looking to make a quick profit – or leaseholders will be left to run these blocks themselves, which brings its own challenges. 

In this circumstance, leaseholders will be faced with the following questions:

  • Who will keep my building safe, and take responsibility for repairs?
  • Who will handle disputes if a neighbour is being difficult or refuses to cover repairs they are obliged to pay for?
  • Who will source insurance for my building, and make sure it is affordable? 
  • Who is going to handle the maintenance and upkeep of my building, alongside my full-time job? 

Leaseholders will be required to take on these administrative and legal burdens themselves. If they don’t, these buildings will fall into disrepair, building safety works will grind to a halt, and costs will increase. Research shows that the vast majority of leaseholders do not want these burdens.

Leaseholders will still be required to pay service charges as before, regardless of whether the leasehold system exists or not. Also, research shows those living with resident run buildings do not pay any less for their service charge. 

Furthermore, the Government plans to change the rules around forfeiture will harm leaseholders as a whole – and could mean maintenance and building repairs are delayed.  

Leaseholders’ solution

The Government should abandon its attack on the leasehold system, which is misplaced, and introduce regulation to tackle service charges directly. The current Bill does not do this. 

The Government should also introduce robust regulation for the property management sector, ensuring all property managers sign-up to a strict code of conduct, as recommended in Lord Best’s ROPA proposals.

Rather than scrapping forfeiture, the Government should introduce strict regulation to make it a last resort, , whilst ensuring any windfall is distributed to the homeowner and not retained by the freeholder.
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Taxpayers

The Government’s raid on pension pots will lead to an unprecedented transfer of wealth from pension funds. In many cases the beneficiaries of this will be wealthy buy-to-let investors.

This will be legally challenged and could be found to be unlawful. If so, the Government could be forced to compensate investors for this loss of value.

The Government’s own impact assessment puts this figure relating to changes in ground rent alone at £27 billion – which would be paid from taxpayers’ money – with further losses relating to other impacts of the Bill.

£27bn is a staggering amount – it’s more than we pay nurses each year.

Taxpayers’ solution

The Government should rethink the approach that could see the taxpayer hit with a £27bn bill for compensation.

They should work with industry to introduce regulations that address the real concerns of leaseholders.

Leaseholders shared their thoughts in a recent Government report

READ MORE

  • “The costs associated with buying the freehold would outweigh any benefits – going forward if everyone had an equal share like of a block of flats, you are still going to pay a service charge.”

    Flat Owner, London

  • “I don’t like the idea of taking over management. Too much responsibility, too stressful.”

    Flat Owner, England and Wales

  • “I work full time and then on my days off, I want to relax and see my friends not be dealing with what would seem like another job.”

    Flat Owner, London

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