What Proposed Leasehold Reforms Mean For Landlords and Leaseholders

Few legal matters have caused as much ire in the media and amongst affordable home campaigners as the leasehold system.  Once a form of land tenure spread across the British Empire, it is now almost solely confined to England and Wales.  Ever since the ground rent scandal caught the media’s attention in 2017, (where developers locked tenants into contracts which could see ground rent of £200-£400 doubling every ten years, making the properties virtually unsellable), there have been calls for the system to be radically reformed.  In 2019, it was announced that all new build homes must be sold as freehold and ground rents on new flats slashed to zero.  And in January 2021, further leasehold reforms were announced. 

What are the proposed new reforms?

The government’s proposed changes to the leasehold system are as follows:

  • Leaseholders will be able to extend their leases for 990 years as opposed to the current 90 years, and ground rent following the extension will be abolished.
  • Although the vast majority of landlords quote reasonable costs for leasehold extensions, a few do significantly inflate the figures. To prevent this, the government will provide an online calculator to determine how much a leaseholder will need to pay to extend their lease or buy the freehold of their property.
  • The requirement to pay the ‘marriage value’ after the lease runs down to 80 years or under will be abolished. The ‘marriage value’ refers to the amount the property has increased in value since the last lease renewal.  Having to pay ‘marriage value’ can add thousands of pounds to the cost of a lease renewal.
  • Ground rent will be scrapped for retirement properties in order to protect the elderly.
  • Leaseholders can voluntarily agree to a restriction on any future development of their property to avoid paying ‘development value’.

What is the purpose of the Commonhold Council which is being established?

Commonhold is a form of homeownership introduced in 2004 by the Commonhold and Leasehold Reform Act 2002 and Commonhold Regulations 2004.  It allows people purchasing units in multi-occupancy developments to own the freehold of their home.  In addition, a commonhold or residents’ association (made up of the unit owners) owns and manages the common parts of the property per standardised rules.

Under the proposed legislation, the government is to establish a partnership of leasehold groups, industry, and government.  The Council will be charged with helping prepare landlords, homeowners, and the property market for the widespread take-up of commonhold tenure.  It is believed that fewer than 20 commonholds have been created because of the complexity moving from a leasehold structure to commonhold and the reluctance of mortgage lenders to recognise the latter.

What should landlords and leaseholders do to prepare for the changes?

Both landlords and leaseholders will be affected by the proposed changes to the leasehold system.  Freeholders, especially developers, are likely to find that the projected income from their leasehold properties will fall if the law changes.  And although the changes appear advantageous for tenants at first glance, it is best to proceed with caution.  With the problems resulting from the Coronavirus pandemic and Brexit, there is no guarantee that a Bill will be passed into law this year or even next.  As a comparison, the government announced an overhaul of divorce laws in April 2019.  The Divorce, Dissolution and Separation Act 2020 received its Royal Assent in June 2020 but will not come into effect until Autumn 2021, two years after the announcement was made.

For both landlords and tenants, it is best to seek advice from an experienced residential property solicitor before taking any action based on the government’s announcement regarding changes to the leasehold system.

To make an appointment to discuss any aspect of residential property please get in touch today.

The Impact of Coronavirus and The New Restrictions on UK Property Sector

Following the latest set of restrictions in November in the UK, the housing market will remain open. However, the outlook for house prices is looking increasingly uncertain. In this post, we look at how the Coronavirus epidemic is impacting the market from the perspective of homebuyers and sellers, as well as those in the real estate business.

Why has the property market been doing so well since the first lockdown?

The swift actions taken by the government earlier this year, in the forms of mortgage payment holidays and the furlough scheme, meant; that despite the recession, the property market has been able to keep moving forwards. This is why when we would usually expect to see a dip in house prices during a recession (being driven by people who are forced to sell as they can no longer afford it due to job loss, for instance); we have instead experienced a market that is being driven by people who are motivated to move, and who can afford to do so. In previous recessions, where no government support was offered, this resulted in people being forced into a financially challenging situation where they needed to move home.

When the housing market was forced to close down earlier this year, property website Zoopla reported that an estimated 375k property sales worth approximately £82 billion were placed on hold. When the market re-opened after the first lockdown, the property market was flooded on a large scale.

Buyers were typically looking for country locations and more space, and due to new home working arrangements, they were able to look for properties more rurally and not necessarily be tied into needing a property near a place of work. At this point, it seemed quite clear that it was a sellers’ market.  Add to this, the news of the stamp duty holiday which saw the nil-band raised from £125k to £500k, and it’s easy to see why, by August, house sales hit a record milestone; with Rightmove reporting that a 10-year high had been achieved with the number of properties selling within 7-days of being listed. 

UK House Price Outlook

Although it’s now expected there will not be any immediate drops in UK house prices, the economic impact of the secondary lockdown could have implications that surface further down the line. In October, it was widely reported that annual house price growth had reached a five-year high of 5.8%. However, there seems to be a growing consensus that this growth will not continue and that we should expect to see only minor price falls in the market next year.

The forecasts for UK house prices have varied a lot throughout the Coronavirus epidemic.

Deutsche Bank predicted drops as high as 23pts, while Zoopla and Savills remained more optimistic after the surge and predicts the year will end more positive, up 4% overall.

Ultimately, both the buying power and mortgage availability are all determined by the state of the economy.  For those looking at borrowing money for a mortgage, forecasts suggest that the Bank of England will not look to raise the base rate any time soon.

After the furlough support scheme comes to an end, followed swiftly by the end of the stamp duty holiday in March, all eyes will be on the state of the economy and its recovery. As this period is also thought to be the time when unemployment levels in the UK will peak, the potential for price falls will depend on how serious the damage to the economy is, and indeed, how much time it takes for unemployment levels to fall. If unemployment levels become too high, this could have a direct impact on property prices, and more people could be forced to sell their properties. Any further restrictions on lending could also reduce the prospects for first-time buyers as well.

The Impact of a Second Lockdown on UK Property Businesses

As we’ve already mentioned, the UK property markets are open for business. While Wales did face a two-week circuit breaker close down during the final part of October and early November, they are now fully operational once more.

Overall, the property market is showing great levels of resilience during lockdown number two. Property valuations are up by 38% over the same period, and as expected, viewings have fallen by around 15%. Interestingly, property exchanges have risen by approximately 11%, reaching another all-time high.

Although some estate agency owners feel sellers and buyers are potentially delaying decisions until after lockdown two is complete, there are others who report they’ve seen an increase in their property business revenues compared to the same period last year.

Outside of the control of UK property is the looming potential for a no-deal Brexit and the race to find a vaccine or treatment for COVID-19. Both of these events will impact the property market in one way or another. However, for now, those in the business of trying to forecast what will happen in the market seem to confer that following a busy summer period and the release of pent-up demand following the easing of the first set of lockdown restrictions in the UK, there is enough momentum to keep the market moving forwards.

If you have any questions about your contractual obligations or would like help with any property issue, our commercial property solicitors at North London firm OGR Stock Denton can give you the guidance needed to know exactly where you stand.

Stamp Duty exemption for UK home buyers

The COVID-19 pandemic has turned many industries upside down by virtually shutting off their customer base, and the Government has resorted to a variety of extreme measures in order to limit the damage that the businesses in these industries suffer. Of all these measures, one of the biggest is the Stamp Duty holiday, which could exempt home buyers from tens of thousands of pounds in costs. So how does the holiday work, who does it affect, and how can we help? Let’s take a look.

What is the Stamp Duty holiday?

Chancellor Rishi Sunak implemented the Stamp Duty holiday to revive the flagging housing market, as the residential property market clamped up in response to the economic situation. The measures mean that Stamp Duty only has to be paid on properties worth more than £500,000, rather than the £300,000 limit under the old rules. This measure actually doesn’t mean much for first time home buyers, because the average new house only costs £208,000, but to professional landlords and investors, it can mean a huge boost to their profits.

What are the potential savings?

For property dealers who regularly transact in homes worth more than £500,000 the old SDLT regime would have seen them pay in excess of £30,000 in Stamp Duty alone, paying 3% on the first £125,000, 5% on the next £125,000 and 8% on the last £250,000. Now, as a result of these changes they will only pay the minimum rate of 3% on the sale, so a £500,000 property will only cost them £15,000 in tax. Clearly it’s well worth considering investing during this holiday, which ends in March 2021, due to the level of potential savings.

How can we help?

If you’re an existing landlord or investor hoping to capitalise on the holiday, or you’re a new starter looking to dip your toes in the water, it pays to get expert advice in these unprecedented times. While this is a potentially golden opportunity to make a life-changing investment, the difficult economy also makes it a serious risk, and to go about it without the best help could have serious consequences. Thanks to our years of conveyancing experience, and our down to earth and no-nonsense advice, we can help you make the best investment with your money and to ensure you make the most out of the SDLT holiday. If you’ve got your eye on a property, and you’d like to make your move during this time, get in touch with us on (0)20 8349 5501.

Government extends eviction ban in England and Wales

The ban on evictions in England and Wales, originally introduced in March, will now be extended for a further two months.

The Government’s latest extension to the eviction moratorium means that landlords will be unable to commence a claim in the Courts for possession before 23 August 2020.

The move, intended to protect tenants facing financial difficulties as a result of the pandemic, does not excuse tenants from paying rent and any missed payments will, in most cases, result in the accrual of rent arrears unless agreed otherwise.

How these arrears are repaid is down to the discussions and agreements between individual tenants and landlords. Once the moratorium ends, if arrears continue to be unpaid, then landlords will be able to take action to repossess their property via eviction proceedings.

The Government has said that tenants and landlords should maintain a dialogue and consider all options including flexible payment plans which take into account a tenant’s circumstances.

The Government is also working on new arrangements, including legislation, which will ensure the Courts are better equipped to address the need for appropriate protection of all parties, including those shielding from coronavirus. 

These arrangements should ensure that judges have the necessary information to make just decisions and protect the most vulnerable, according to the Government. 

House moves and viewings can begin again in England

The Government has issued new guidance for England that will allow house moves and viewings to begin again from 13 May 2020.

Under the previous Government guidance, buyers and renters had been asked to delay moving home and estate agents had been asked not to conduct viewings while the “stay at home” advice was in place.

However, under the Government’s new updated lockdown regulations, viewings and moves will be allowed as long as social distancing guidelines are observed.

The rule change allows potential homebuyers and renters to visit homes, while anyone who has already bought a home but delayed their move, will be allowed to move in.

It is thought that more than 373,000 property sales have been frozen due to the crisis and it is now hoped that many of these can go ahead.

The Government confirmed that those waiting patiently to move can do so as long as it is carried out safely within the current rules.

Click here to read the official Government guidance

The new regulations are not mirrored in the property markets in Wales, Scotland and Northern Ireland, which remain shut for now.

Those looking to buy or sell homes in England should seek legal advice from a licensed conveyancing solicitor before doing so. To find out how our team of specialist solicitors can help you with your move.

Frequently Asked Residential Property Questions during the COVID-19 crisis

The UK residential property sector has been adversely affected by the ongoing coronavirus pandemic and landlords and tenants may wonder where they stand.

To assist tenants and landlords, the Government has introduced several temporary changes to legislation and issued a lot of guidance that attempts to cover a number of scenarios.

However, many tenants and landlords are still likely to have queries, which is why our experienced team have put together a list of questions and answers to help you navigate the obligations and rights of all parties.

Can a person be evicted for not paying rent?

New rules have been introduced by the Government that freeze repossession proceedings and evictions to ensure that tenants struggling to cover their rent are protected.

These changes have been active since 27 March 2020 and will last for 90 days.

The measure covers all private and social renters, as well as those with mortgages who face repossession by a lender.

To clarify the rules the Government has released additional guidance which confirms that:

  • There is a current backstop for the relevant direction so that it ceases to have any effect on 30 October 2020.
  • The delay imposed on possession proceedings does not apply to claims against trespassers.
  • Parties can make applications for case management directions, where both parties agree on them.

The delay does not prevent the issuing of claims and only prevents the progress of them via the courts.

Am I permitted to serve an eviction notice still?

Since 26 March 2020, temporary laws have required landlords to give renters three months’ notice if they intend to seek possession.

Notice periods have been extended accordingly, which will affect the date when court proceedings can be issued.

This protection covers most tenants in the private and social rented sectors in England and Wales including tenancies under the Rent Act 1977, the Housing Act 1985, the Housing Act 1996 and the Housing Act 1988.

The provisions may be changed and the progress of proceedings may still be frozen for a longer period, subject to further amendment by the Government.

Are tenants legal required to still pay rent?

Government guidance tells tenants that they should continue to pay rent and abide by all other terms of their tenancy agreement during this period, where possible.

This means that rent levels set in a tenancy agreement remain legally due and so any unpaid rent will be accrued as arrears and require repayment.

Tenants have been provided with a strong package of financial support by the Government to ensure that they can continue to meet their housing costs. Where they can pay the rent as normal, they should do.

Tenants that are unable to pay rent must contact their landlord at the earliest opportunity to discuss the repayment of rent or alternative arrangements.

The moratorium on evictions does not allow for tenants to stop paying rent and they should be aware that landlords can take legal action in future to recover rent, including the repossession of the property.

My tenant is in arrears, what can I do? 

Landlord and tenants have been asked, where possible, to agree on a plan where tenants are struggling to pay their rent.

Options available to tenants and landlords include:

  • A temporary agreement not to seek possession action;
  • A reduction in rent; and/or
  • An agreement to repay arrears at a later date.

Where both parties agree to repay arrears, either via a one of payment or the spreading of arrears over the life of the lease, a landlord and tenant must agree to a plan in writing. All parties must abide by this arrangement and tenants must contact their landlord immediately if they are unable to do so.

Is there any additional support for buy-to-let landlords who rely on rental income to pay a mortgage? 

Lenders have extended the offer of a three-month mortgage holiday to buy-to-let mortgage holders. If you cannot make mortgage payment due to a reduction in income then you should speak to your lender or mortgage broker to arrange a payment holiday that meets your requirements.

Can I let an empty property and allow tenants to move in?

Movement into new properties should be avoided unless already underway and cannot be delayed, according to the Ministry of Housing, Communities and Local Government (MHCLG).

Its guidance says a contract must have been agreed prior to the Government’s COVID-19 restriction measures, and be unable to be delayed, for a person to move in.

This makes it much more difficult to market a property at this time. If a tenant is required to move in, then they should limit the number of people involved to prevent the spread of the virus.

The social distancing restrictions also make viewings and identity verification much tougher.

Can I conduct check-ins and check-outs? How does this affect the return of deposits? 

Where a lease is due to end and you are required to conduct checks, these should involve as few people as possible. You will also need to consider the deposit. The Tenancy Deposit Scheme has published specific guidance on performing check-outs during the coronavirus pandemic, which can be found here.

Are property inspections still permitted? 

By law, landlords must ensure their property is in a fit state of repair, which is why they are required to perform inspections. These inspections may not be possible under the current Government guidance, particularly where a person is self-isolating or shielding because they or a loved one is vulnerable.

Where a tenant informs you that they are self-isolating it may be advisable to cancel any planned inspections and rearrange them for a suitable time in the future.

Where you can perform an inspection, this should be arranged or conducted while a person is out of the home. If you cannot avoid an inspection, make sure you take all necessary precautions and follow Government guidance. You should make sure any changes to your normal inspection schedule is clearly documented.

What if I need to perform repairs?

Tenants have a number of implied rights to certain important repairs. However, it may not be possible to undertake repairs at this time.

Under these circumstances, you must document the reason you cannot carry out the repair to ensure that you have evidence.

Essential works, such as work on water supplies, sanitation and the supply of electricity and heating must be addressed.

In these cases, landlords, their representatives and tradespeople must follow Government guidance on social distancing while undertaking repairs.

Do I still have to meet tenants in person to perform a right to rent check?

Landlords are required by law to conduct a right to rent check that involves meeting the adult occupiers of their property in person before the tenancy is signed. During this meeting, they must check that all adult occupiers have a right to rent in England.

The Government has temporarily amended the right to rent rules so that landlords can:

  • Ask the tenant to submit a scanned copy or a photo of their original documents electronically.
  • Video call the tenant and ask them to hold up the original documents while the landlord checks them against the digital copy sent to them.
  • Record the date the check was made and mark it as “an adjusted check has been undertaken on [date] due to COVID-19”

Checks performed in this way will have to be followed up by later check in-person to ensure they are compliant.

Can I still undertake gas safety checks? 

It is a legal requirement for a rented property to have an up to date gas safety certificate. The Government has confirmed that gas safety inspections can go on as they are essential works, as long as social distancing guidance is followed.

Gas Safe has published guidance on how safety inspections can be done, which can be found here.

New electrical safety certificates were due to be introduced, are these still required? 

Landlords will still have to have a qualified person inspect their property and provide an electrical installation report before 1 July 2020 for any new tenancies.

If this isn’t possible, landlords are advised to keep records of their attempts to arrange inspections and any obstructions that prevented one from being undertaken.

My energy performance certificate (EPC) is about to expire, should I renew it? 

It is only a legal requirement to obtain a valid EPC when a property is being marketed and a new tenancy begins.

Where no new tenancy is due to begin, landlords are allowed to let an EPC lapse until the property is ready to be re-occupied.

Got more questions?

We understand that you may have questions that are specific to your own requirements and challenges. Our team of residential property experts are standing by to offer support and advice.

 

Forfeiture of lease – Protection for tenants (COVID-19)

In order to protect tenants the UK Government changed a well-known Landlord and Tenant law.

The easiest way for a landlord to get rent out of their tenant who hasn’t paid is to “change the locks at the property”.  This is officially known as forfeiture for non-payment of rent. This is a pure real estate right – it doesn’t apply to other commercial contracts. It is generally effective as no business owner wants staff to turn up to their office on Monday more to find the locks have been changed. Even more so for customers of a retail store!

In light of the coronavirus the Government changed the law so that landlords are prevented from changing the locks and forfeiting until the end of June. That is in recognition of the fact that shops are shut and office workers are being told to work from home (WFH).

So Landlords can’t forfeit for now (note this is not a rent holiday – just a delay in landlords enforcing payment).

Whilst this sounds like good news to tenants the UK Government has NOT changed another law which landlords can use – winding up.

A landlord can “wind up” a company if it does not pay an undisputed debt. Rent is an undisputed debt.

Landlords can just apply to court to do this but most may serve a statutory demand to be safe (it buys them some protection). You would get a statutory demand to the company’s registered office.

If that sounds contradictory; it is – and many of my clients agree. It is a shame that the UK Government hasn’t called a moratorium (ie a stop) on UK company involuntary insolvency but it hasn’t.

So what should you do?

I recommend talking to your landlord first – they are expecting the call I assure you. Ask for a rent free. Or maybe half rent for 3 months to take you over the worst period. Failing that trying for monthly rents for the next 12 months – or until the end of the lease.

It is a negotiation done in good faith – you have some law on your side but not all law.

Whatever you “agree” though make sure you email an agreement and get them to confirm.

If you need further assistance you can always call us on 020 8349 5504 or send an email and we will do our best to help.