Leasehold Reforms: A £30bn Legal Challenge Looms
The Residential Freehold Association has warned that the Leasehold and Freehold Reform Bill, currently making its way through parliament, could lead to a colossal £30bn legal challenge. The trade body has written to the Office for Budget Responsibility, expressing concerns that the Bill’s plans to cap ground rent and regulate service charges could leave the government open to huge compensation claims.
Leasehold reform plans spark controversy
The Bill, introduced by Housing Secretary Michael Gove, aims to boost the rights of people living in the 4.77 million leasehold homes in England, which accounts for 19% of the nation’s housing stock. However, the Residential Freehold Association argues that the moves would fundamentally rewrite millions of long-term standard leasehold contracts, relied upon by investors such as pensioners, charities, and other major institutions.
“The government’s policy will not only do little to improve standards for leaseholders, but it will also have a significant impact on the state of public finances, which will inevitably be picked up by the taxpayer.” - Mick Platt, Residential Freehold Association director
The association claims that the reforms would inevitably lead to a legal challenge under Article 1 of Protocol 1 of the European Convention on Human Rights. This could result in a massive legal bill for the next government, which would be a significant burden on the taxpayer.
Leasehold contracts under scrutiny
Leaseholders own the right to occupy their homes, but the building or land is owned by a freeholder landlord. Many are trapped by onerous ground rents that are either doubling or increasing in line with inflation, costing them thousands a year. Others have to pay service charges, but have little say over maintenance work carried out in and around their homes.
The average service charge leaseholders pay managing agents is £3,634 a year, a 41% increase over the last five years. The average ground rent leaseholders pay landlords in England and Wales is £298 annually, according to official data.
Protesters call for leasehold reform
Housing Secretary Michael Gove has called the leasehold system a “feudal system that needs to go.” However, the Residential Freehold Association argues that the Bill’s plans will not only do little to improve standards for leaseholders but also have a significant impact on the state of public finances.
The Bill is currently at the committee stage in the House of Lords. The Residential Freehold Association is urging parliament to reconsider the reforms to avoid a potential legal challenge that could have far-reaching consequences for the taxpayer.
The leasehold reform debate continues
As the debate around leasehold reform continues, one thing is clear: the stakes are high, and the consequences of getting it wrong could be devastating for the taxpayer. It remains to be seen how the government will respond to the Residential Freehold Association’s warnings and whether the Bill will be amended to avoid a potential legal challenge.
