An expert’s view on leasehold reform
For this edition of Wild Geese Mail, I have a guest writer. Meet my friend James Wyatt MPhil (Cantab.), F.R.I.C.S.
James is Director of Parthenia Valuation and specialises in valuations for tax purposes, expert witness work and lease extension and enfranchisement. He acts on behalf of a number of royal families, family offices and high-profile individuals, he has advised survivors of Grenfell Tower and was the appointed expert valuer for the Metropolitan Police in a murder case. As well as being a Fellow of the Royal Institution of Chartered Surveyors, he qualified as both a stockbroker and investment fund manager and holds the Investment Management Certificate.
I asked James to write a few words about leasehold reform. A lot has been said about leasehold reform from various parties, however, James has an informed but impartial view – he acts on behalf of leaseholders and like many of us, he just wants to see a fairer system. Below is his view on why the legislation is taking so long to change and the impact it might have in the future.
So without further ado, over to James…
Various governments have promised leasehold reform. We know now through the Grenfell Tower Inquiry that the government knew about the unsafe cladding about 20 years before the Grenfell fire. Our current government has stated that they will abolish marriage value. A leading KC believes abolishing marriage value has an almost 50% chance of a successful compensation claim from freeholders, which could cost taxpayers between £20-£30 billion. And ahead of this year’s general election, the government has come up with leasehold reform as a vote winner.
So, we have a government in need of an electoral win, a department who want a vote win, and to appease the leasehold community, because of Grenfell, they've come up with this proposed legislation.
Parts of the legislation are very good. New leases and lease extensions would be 990 years. All new leases would have ground rent set at a peppercorn amount, which effectively means never having to worry about ground rent going forward. Marriage value and ground rent calculations will naturally fall away over the next 20-30 years as the legislation is passed. However, trying to abolish marriage value and potentially ground rents has significant impact.
According to the government there are around 4 million leasehold properties in England and Wales. The Leasehold Knowledge Partnership calculates this is closer to 6 million. Either way, there are a significant number of voters who are living in leasehold properties and the impact will be widely felt.
The National Leasehold Campaign was set up to address the doubling ground rents issue, primarily in the Midlands and North in new developments. The doubling ground rents became onerous very quickly, and also they also came with rather nasty estate management clauses.
Many of the people who bought those leaseholds were told that if they wanted to buy into the development they had to use the developers’ recommended solicitors, who in turn recommended surveyors. None of these people highlighted the onerous terms of the ground rent or the estate management charges.
With this in mind, we can see why the government wish to address leasehold reform. Professor Nicholas Hopkins, who is leading the Law Commission, said that when they were putting the proposed legislation together, they're trying to consolidate over 50 pieces of previous legislation. But they admit it doesn't go far enough.
A lot of people want to see the regulation of estate agents and managing agents. Lord Best has recognised the severity of the situation and he made a number of recommendations. Commonhold hasn't been included either.
The better new build developments in this country have set up a company which owns the freehold, then everyone who buys a leasehold flat is granted a share. The problem is that a lot of commercially-focused freeholders and developers who created all these nice properties with onerous ground rents, have then transferred the freehold into an offshore vehicle and pension funds and various investors.
I was at the unveiling of the legislation in November and the Housing Minister said (I’m paraphrasing): We can't put in commonhold. We can't do the regulation of agents. We want to keep it fairly straightforward to have any chances of passing. The last thing we can have is a legal challenge. And then five minutes later: We would like to abolish round rents and we want to abolish marriage value.
The concept of marriage value has been around for decades. Surveyors, House of Commons, House of Lords, the Supreme Court all determined marriage value exists.
Everyone in the room suddenly thought, hang on a minute. The government are saying that they can't risk a legal challenge, however, their own legal advice is that there's almost a 50% chance of a legal challenge. Abolishing marriage value and ground rents are very contentious proposals. It’s all very disjointed.
We’ve demonstrated a real time online calculator to the government which can reduce premiums by up to 60%. It retains marriage value, but also minimises it, according to the market evidence, and it's there ready to go. Will they adopt it? Watch this space.
I hope this guest edition of Wild Geese Mail was informative and useful. Once the leasehold reform bill has passed through parliament and received Royal Assent, no doubt there will be future newsletters on various aspects of the legislation. Thank you James for your contribution.
In other news, I am delighted to share that I’m part of the National Garden Scheme for the second year in a row. My garden will be open to the public on 1st June – you can book here.