As I stagger towards writing up some case law at the weekend, some notes on things that have happened.
The Solicitors Regulation Authority published a Guidance note – “Advising on leasehold provisions including ground rent clauses“.
This covers a lot of the issues that have frequently be raised by leasehold purchasers as complaints about their conveyancing solicitors – in particular, not pointing to ground rent increase clauses (and the infamous doubling ground rent clauses). There are also useful cautions and warnings for solicitors on a developer’s ‘recommended’ panel as to their duties. Such panels and some of the games developers have played around insisting on their use by purchasers are also being looked at by the CMA.
The Guidance also covers advising on the ‘assured shorthold tenancy’ issue (only some 4 years after we covered it). Unfortunately, we the Guidance says is this:
This includes the risk that a particular ground rent provision is likely over time to cause the lease to be treated as an assured shorthold tenancy under the Housing Act 1988, by virtue of exceeding 0.1% of the property value or otherwise. If this occurs, it will change the nature of the relationship between the client and the freeholder, which could be particularly significant if rent falls into arrears.
Well…. no, that is not right. Mortgage lenders often consider a ground rent of more than 0.1% of property value to be ‘onerous’ and refuse to lend, but it has nothing to do with the AST issue. That arises by operation of sections 1 and 19A Housing Act 1988 and Schedule 1 para 3A to the Act. A lease is an assured (shorthold) tenancy if the ground rent is over £250 pa outside London, or £1000 pa in London.
That aside, the Guidance is a good thing in reminding errant conveyancers of their professional obligations on leasehold purchases, and may help some purchasers with complaints.
While on leasehold, on 8 February 2022, the Leasehold Reform (Ground Rent) Act 2022 was given Royal Assent. This will remove ground rents for future leases (even including, after a further period of time, retirement flats). When it will come into force remains unknown, as it will be by regulation.
This is, by any measure, a considerable success for leasehold campaigners. Not so very long ago, the prevention of ground rents would have appeared something of a wish, or a pipe dream. Determined campaigning changed the landscape entirely (as did the doubling ground rent leasehold house scandal).
And lastly (quite possibly in several senses), we have a new housing minister. Chris Pincher MP, having bucked the trend by lasting a whole 2 years as housing minister, is replaced by Stuart Andrew MP.
It rapidly became clear that nobody knew anything much about him, and his housing record of interest – apart from a spot of NIMBYism in his constituency, was apparently limited to whipped votes (including for all the disastrous bits of the Housing and Planning Act 2016 that never actually made it into force). Some media did pick up that he was a) a landlord, and b) one of the Tory MPs who voted against the ‘fitness for human habitation’ amendment to the Housing and Planning Bill (as was) in 2016.
Yes, I know we got H(FFHH)A passed as an Act in 2018, and yes it was a whipped vote in 2016, but I’m still prepared to carry a grudge for that vote…
I am honestly surprised that in all this time, the government’s never added an extra provision to schedule 1 HA1988 to exclude tenancies with long fixed terms. (E.g. over 21 years or something like that.) Seems like an easy solution that doesn’t negatively impact anyone.
Indeed. There seems to have been a general lack of awareness of this as an issue, and of the impact.
I think the SRA should have issued separate guidance for “Referrals and conflicts of interest.” as this applies to freeholds as well and the current title of the guidance gives no indication that it includes this subject.
Well collegaues and I discussed the £1000 amount in the very early 00s when a certain band of brothers had entered the market and upturned the modest rent or peppercorns scheme ( and scraping my ingenious plan to create a virus that killed peppercorns and making me rich by insisting on payment :) } .
At the same time it was clear that even a very low RPI on the indexation versions or doubling would make buyers and lenders blanche and buyers unable to sell. A quick DCF showed that service charges could be less for a modest block than the GR in a decade or so.
No one wanted to listen least of all solicitors as it was a “long term problem” and likely outside any time limit for a negligence claim for “poor” advice of in my view somnehting that was bleedin’ obvious. I do not therefore have much pity for the peeps of the Law Society especially in attempting to serve two masters, vendor and purchaser.
Sadly GR is to go despite being a useful tool for RTE companies as a way to pay for items outside the service charge DOII Companies House fees accounts etc and a safety net when there are arrears and defaults from lessees. It was often an asset for a short term loan where needed and now it has gone the way of the dodo all because it was allowed to get out of hand.
Please, ground rent as a safety net for service charge arrears? Never, ever, have I seen this. Not once. Ever. It is a fable of rentier freeholders.
Hmm… I wonder if you (NL) slightly misunderstood the comment from Andrew. He was (I think) talking about ground rent in the context of RTE companies (by which, I assume, he means leaseholder owned/controlled freehold companies, given that the RTE company provisions of the 2002 Act haven’t come into force). I would tend to agree with him that – in that very narrow and specific context – an income stream outside of the service charges (whether ground rent, renting of parking spaces/garages etc) is very useful as part of an emergency fund, in large part so that the leaseholders-as-members don’t have to cover shortfalls. But you are obviously right as regards other forms of GR. There is a reason pension funds like owning freeholds and it precisely because the GR is as close to guaranteed money as you can get!
Ah, yes – fair point. I wasn’t thinking in terms of RTEs. Though a lot of enfranchisers seem to grant themselves new leases at a peppercorn as a first step…
Yes – the (mild) tension between the best interests of the individual leaseholder (999 year lease at no rent) and the best interests of the freehold company (to have greater financial security). As you well know, the surrender and re-grant model works perfectly well until it doesn’t.