Written Statement: Next steps on leasehold reform

Today I am pleased to inform Members about the publication of research into the sale and use of leaseholds in Wales, and the experience of those who live in leasehold properties. The research was commissioned to fill a gap in our understanding of the operation of leasehold, and inform the leasehold reform agenda, and can be found here: https://gov.wales/research-sale-and-use-leaseholds-wales

Some of the key findings of the research that I’d like to highlight today, are:

• Leasehold properties in Wales represent approximately 16% (approximately 235,000) of all properties.
• Purchasers do not generally make an active choice to purchase a leasehold property, but rather are drawn to them because of location, type of property, and issues such as security.
• Leasehold legislation is complex and leaseholders often do not fully understand the implications of the law when they buy a leasehold property.
• Even when they do understand the law, it does not necessarily prepare them for the “lived experience” of leasehold.
• Leaseholders participating in this research echoed the disadvantages highlighted by the Law Commission: the lease is a wasting asset and leaseholders do not experience the freedom and control they expect from property ownership.
• The position and experience of leaseholders in Wales is not substantially different from that revealed by investigations into leasehold in England.

The new research complements the other evidence I have been considering, including the report of the Task and Finish group on leasehold reform; the reports of the Law Commission projects on enfranchisement, right to manage, and commonhold; personal and elected member representations via correspondence, Senedd debates and questions; along with other relevant activity including the Competition and Markets Authority’s ongoing investigation into leasehold sales practices.

The evidence is compelling that there is no good reason for the imposition of monetary ground rent in leases. Its use, especially where the rent is high or where terms are onerous, inevitably leads to poor outcomes for leaseholders. Ground rents do not provide value for leaseholders and where they escalate, they can become unaffordable over time. Members will be aware of the use of particularly pernicious doubling ground rent clauses. Mortgage companies can be put off by onerous ground rent terms, and this can leave leaseholders unable to sell their properties. High or escalating ground rent can also have a compounding impact on the cost for a leaseholder who needs or wants to extend their lease or purchase their freehold, effectively trapping them in the lease by making enfranchisement unaffordable.

There are also pitfalls for leaseholders where ground rent for their home rises over £250 per year. These leases qualify as an Assured Shorthold Tenancy, leaving them open to mandatory possession grounds for relatively minor arrears, an issue sometimes referred to as the “ground rent trap”. Although I am pleased to say that once the Renting Homes Act (2016) is commenced, this “trap” will no longer apply to leaseholds in Wales.

It is clear from the evidence that further action must be taken to address these issues. Left to continue without intervention, there is a real risk that leasehold will become increasingly regarded as the home ownership tenure of “last resort”.

Now that I have had the opportunity to consider all of the evidence, I want to set out my intentions for taking forward leasehold reform in Wales, which are:

1. Restricting future ground rents to zero for leasehold properties in the third phase of Help to Buy-Wales, which is due to commence in April.  This will eliminate some unfair practices which are experienced in relation to current leases. It will lead to a significant drop in the number of new leasehold properties that have ground rents with a financial value and it will apply consistently to new leasehold properties regardless of who builds them;

2. Paving the way for a permanent restriction of future ground rents to zero at the earliest legislative opportunity; to this end, I have written to the UK Government to request Wales be included in upcoming legislation restricting ground rents in new leases.  Whilst it will, of course, be for the next Senedd to consider the merits of the ground rents legislation in respect of Wales, through the legislative consent process, it provides an opportunity to achieve the changes in the shortest possible time for prospective leaseholders in Wales; and

3. Seeking the UK Government’s agreement that our officials work together to explore a joint approach to legislation enacting the Law Commission’s recommendations for leasehold reform for England and Wales.

The Law Commission enfranchisement recommendations pave the way to a fairer and more equitable enfranchisement system, which will limit the impact that ground rent can have on the ability for leaseholders to take advantage of rights to extend or buy out their lease.

The Law Commission have also made recommendations to improve Commonhold as an alternative to leasehold, which will allow residents to own their unit outright in perpetuity, along with a share in, and therefore also control over, the communal space they share with their neighbours. The third strand of their project proposes improvements to the Right to Manage, which may be exercised where leaseholders are not content with the service provided to them.

Clearly these reforms will also require significant primary legislation and I consider there to be a strong case for exploring the merits of continuing with a joint England and Wales legislative approach to these reforms where the policy intentions are the same. The UK Government has already indicated they intend to legislate to bring forward the Law Commission reforms during the current Parliament, and I believe that introducing simplified and clearer law in what is a technically and legally complex area offers the best solution for leaseholders.

I support the approach set out by the Law Commission recommendations and firmly believe they will improve the operation of leasehold for those currently subject to it, and provide a route to an alternative system which avoids some of the most problematic aspects of leasehold.

Clearly it is not for me to fetter the decision making of any future Senedd, and so it will be for the next administration to consider the merits of taking forward the ground rents legislation in respect of Wales through the legislative consent process. Similarly, it will be for the Government of the time to assess the relative merits of legislation enacting the recommendations of the Law Commission, prior to the consideration of legislative consent. But, these steps will ensure that the opportunity to pursue such an approach to major changes to leasehold on a joint basis remains open, especially where they are considered to be in the best interests of leaseholders in Wales.