KINGS SPEECH: Tackling Punitive Service Charges

Today in the King’s Speech the King revealed that ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges.

Linz Darlington, lease expert and founder of Homehold (www.homehold.org), lease extension specialists says: “The promises of making it cheaper to purchase a freehold is fantastic news, and hopefully this will also extend to lease extensions.

“This is likely to include the Government’s promise to enact their ban on marriage value, which will be particularly beneficial to those people who have leases that have dropped below 80 years.

“In many cases this will reduce the cost of a lease extension or freehold purchase by between one-third and two-thirds.

“The removal of marriage value is something which large freehold investors will almost certainly lobby and litigate against enthusiastically. However, the Government must stand firm on this commitment, because ultimately marriage value is paying a sum to freeholders above what they would receive if they sold their assets on the open market.”

Exploiting homeowners

Linz continues: “Freeholders see leaseholders as an income stream. You are a customer in your own property.  This has included everything from escalating ground rents to sky-high service charges and maintenance bills. Often the companies delivering these services are connected in some way to the freeholder themselves.

“To end this exploitation, we first need reform before the next election which removes some of the issues with leasehold – including those relating to onerous ground rents and expensive lease extensions. This should be followed by more comprehensive reform after the next general election.”

What are the punitive service charges that the King refers to?

Linz adds: “While it is not clear from the words in the King’s Speech what punitive charges will be addressed, based on previous reporting it is likely to relate to capping ground rents either at 0.1% of property value, or a complete abolition.

“A leaseholder pays ground rent to the freeholder but gets nothing in return. It is literally money for nothing. Despite this, the Government’s promise to abolish ground entirely is unlikely to benefit leaseholders – because it is unlikely to ever make it onto the statute books.

“Alternatively, if ground rent was capped at 0.1% of the property value, or perhaps at a fixed amount, then it would still resolve issues caused by high ground rent such as saleability and mortgageability.

“Critically, allowing freeholders to continue to receive a reduced income stream from their assets may avoid a situation where freeholders successfully seek a determination that capping ground rent would infringe upon their human rights, and no cap is implemented at all.”

Abolition of Leasehold

“It is noteworthy that the King’s Speech did not mention the abolition of leasehold, but without making steps towards this, any benefit to existing leaseholders will be limited.

“To genuinely improve the situation that most leaseholders find themselves in, we need both parties to campaign at the next general election with a compelling alternative for flats. This needs to be a reinvigoration of the Commonhold tenure which would provide flat owners with control over their blocks and resolve issues relating from high service charges to resolving building safety defects.

“Adoption of commonhold should be forced through requiring developers to sell all new blocks on this basis. For those people living in existing blocks of flats, a simplified route to convert their blocks from leasehold to commonhold must be enacted.

Overall, is this good news for homeowners?

“While the promises in the King’s Speech on leasehold reform are positive, what we need at this stage of the electoral cycle is a Leasehold Reform Bill which is sufficiently comprehensive that it delivers real benefit to leaseholders, while being sufficiently realistic it has a chance of being passed before the next general election.

“Considering the proximity of the next general election, the promises we have been provided put us no further forward today in leasehold reform than we were yesterday. What we need is the introduction of a draft bill before Christmas, and a significant amount of parliamentary time dedicated to its swift passage through the parliamentary process.”