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Light Down The Tunnel?

Tuesday August 6, 2019

Heaton Property MD Damiano Rea
Heaton Property MD Damiano Rea

Another month picking my way carefully through the forest of legislation that has sprung up around the rental property sector. The latest wheeze from the Powers that Be was to introduce new legislation that effects tenancy agreements and many of systems that property management companies have in place, then to release prescribed documents at one minute to midnight the day before the legislation passed into law. You have got to love a civil servant with a sense of humour.

Fortunately, every now and then a little ray of sunshine breaks through the canopy, the more welcome as it is a rare occurrence. Following years of outrage in the media it seems Government is set to address what has become known as the leasehold scandal, providing beleaguered leaseholders with a way out of their nightmare.

Inflating ground rent costs by developers and ground rent companies have seen leaseholders unable to arrange a mortgage on their property, meaning they are stuck with spiralling costs in a house they cannot sell.

Now the Law Commission, which advises ministers, has proposed a raft of new rules which could give leaseholders the right to purchase unlimited lease extensions without a ground rent. Ground rent can be an insidious trap for the unwary. Let us say a ground rent demand of £10 goes ignored or forgotten, its only a tenner, right? Well add legal and administrative fees and the tenner quickly escalates to a debt north of £350. At which point the ground rent company can apply for forfeiture. In layman’s terms the “homeowner” is out on the street.

I put “homeowner” in inverted commas for good reason. An often misunderstood aspect of leasehold is the fact that the leaseholder does not own the property. They own a contract. And as we all know, it pays to read the small print on any contract. It is easy to say ‘caveat emptor’ but a couple of factors mitigate this approach. First, we live in a society where we happily click ‘accept’ when downloading software or apps.

Second and perhaps more insidious is the practice of volume home builders suggesting leaseholders use their solicitors for the legals. A solicitor in the pay of the builders will ensure the contract is legally compliant but they are unlikely to declare “Personally, I wouldn’t sign this if it came with a free BMW”. I have seen a signed letter from a prominent solicitor which states “A 125-year lease is as good as a freehold”. It is not. Not in practice and certainly not in law.

In June the Competition and Markets Authority announced a wide-ranging investigation into some leasehold contract terms, focussing upon potential mis-selling and unfair contract terms. Leasehold can work but only if the person with an interest in the property also has an interest in the land.

Finally, there may be light at the end of the tunnel for beleaguered leaseholders. Let us hope it is the light of common sense and sweet reason. And that American poet Robert Lowell was wrong when he said “If we see light at the end of the tunnel, it is the light of an oncoming train”.

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