English property law needs 'sensible changes' rather than a complete overhaul to stop abuse involving leaseholds, the Law Society said today, suggesting that new houses should be sold freehold unless there are justified reasons not to.
Responding to the government's Tackling unfair practices in the leasehold market consultation, which closed last night, Chancery Lane said suitable legal mechanisms already exist to curtail new homes being sold leasehold. The government is concerned that new-build houses are being sold on a leasehold basis to create an income stream from the ground rent, or to generate additional income from the sale of the freehold interest after contracts have been exchanged.
The Society said the main reasons for selling residential units on a leasehold basis should be to enable common parts to be repaired, mutual restrictions to be enforced, and rights to automatically continue when properties are sold.
Non-legislative measures that would improve practices include estate agents providing prospective home buyers 'standardised written information' about the tenure, service charges, consent regime, lease length and the impact of ground rent provisions before they view a property. If the ground rent provisions are complex, valuation advice should be included. This could be supported by provisions in the Society's national conveyancing protocol so that solicitors can check whether the information has been provided and take action if it has not.
The Conveyancing Association, in its response, suggested commonhold, a property ownership system created under the Commonhold and Leasehold Reform Act 2002, could tackle problems related to new-build leasehold homes.
The Society would be keen to participate in any government review of the act, which came into force in September 2004. However, several areas in the commonhold legislation would need to be revised, Chancery Lane warns, such as the insolvency regime and dispute resolution mechanisms, before it can considered a suitable replacement or alternative tenure. Any changes 'would probably take some years'.
Obtaining necessary information about shared services and consents from landlords and managing agents often contributes to delays and increased costs in the conveyancing process, the Society says. Improving transparency would ensure clients have more accurate costs information upfront.
Other suggestions include a government mandate that house and flat leases be granted with a 'simple and low value' ground rent structure and statutory control of service charges. Freeholders should have the right to challenge unreasonable service charges through the first-tier tribunal (property chamber) as qualifying leaseholders are able to do. The government should consider giving freeholders and leaseholders a statutory right - similar to the statutory Right to Manage - to take over the management of an estate where an estate service charge is payable.
Joe Egan, president of the Society, said Chancery Lane is confident that 'sensible changes to law and to actions by both the government and private participants in the property market can ensure leasehold remains a workable part of England land law'.