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.

A Fine Balance – Coronavirus Lockdown Number Three

Although it was an inevitable consequence of a virulent new strain and the coming of winter, Coronavirus lockdown number three is taking its toll on an exhausted population. Despite the vaccine being rolled out at a galloping pace, being stuck at home during the dank, dreary days of mid-winter is filling few people with joy if the comments on internet forums and newspaper op-eds are to be believed.

However, much of the government’s mixed messaging that is causing frustration and confusion is the result of a much stronger and more positive strategy than was present during the March lockdown. Back in those scary days of early 2020, everyone, including scientists, healthcare workers, and politicians had little idea of what they were dealing with. So when a national lockdown was announced, the country (and indeed most of the world) simply shut up shop. Although initial estimates of a 14% drop in national output proved overly pessimistic, the actual figure of around £190 billion (a drop in GDP of 9.5%) was catastrophic for many industries and businesses.

Ten months on we have a better understanding of not only the virus, but how to keep as much of the economy running as possible whilst facilitating the extreme social distancing required. Schools have more children of key workers attending because not only has the definition of key worker been expanded, but fewer businesses are furloughing staff. The property market, construction, manufacturing – industries that ground to a halt in March, April, and May 2020 are continuing to operate. Furthermore, as always happens in a crisis, people quickly adapt and hunt out opportunities. Many small businesses have taken advantage of their agility and moved online and/or sought new markets abroad, resulting in some being busier now than they were pre-pandemic.

In light of the current dynamic situation, below are some factors which employers need to be aware of regarding the Job Retention Scheme and health and safety compliance, including pitfalls to watch out for.

Coronavirus Job Retention Scheme (the Furlough Scheme) and government-backed loans

In December 2020, the Chancellor, Rishi Sunak announced that the Furlough Scheme, in which the government pays 80% of a furloughed employee’s wages, will continue to the end of April 2021. Businesses will also be given until the end of March to access the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme.

Watch out for – furlough fraud

Alongside the extension of the Furlough Scheme a parallel project is being run by HMRC to claw back funds that should not have been claimed during the first lockdown. Make sure you follow the rules of the scheme diligently, the most important being that furloughed employees must not work. To mitigate your risk of an HMRC investigation, ensure that you keep up to date records of who is receiving furlough payments and the funds distributed. The other area of concern is the rampant furlough fraud being committed by organised criminal gangs. Protect your business from being unwittingly caught up in such fraud by having documented new customer and supplier due diligence policies and procedures in place and communicated to all staff. In addition, rigorously monitor your business accounts/investments for any unusual activity.

Manging Coronavirus risks in the workplace

If your employees cannot work from home you must conduct a Coronavirus health and safety risk assessment at your premises/s and implement policies and procedures to ensure your staff and the public are protected. Not doing so could result in your organisation and its directors facing a regulatory investigation, personal injury or employment law claims, and even prosecution.

Acas advice regarding keeping your workplace safe is regularly updated. At a minimum, all employers should have regard to eight priority actions designed to protect employees and customers:

  • Complete a Coronavirus risk assessment and share it with all staff.
  • Encourage staff to wash their hands regularly, provide hand sanitisers, and clean surfaces frequently.
  • Help with social distancing by putting a one-way walk system in place for staff and customers.
  • Ensure that face coverings are worn by anyone visiting your workplace (unless they are medically exempt).
  • Keep your workplace well ventilated. The HSE has provided excellent guidance on this.
  • If applicable to your business, follow the legal requirement to keep a record of staff and customers attending your workplace and ensure that your method of data collection is compliant with the NHS track and trace system.
  • Consider the mental health of you and your employees. Public Health England has produced useful guides on steps to improve mental health during this turbulent time.
  • If an employee is required to self-isolate they must do so. Under the Health Protection (Coronavirus, Restrictions) (Self-Isolation) (England) Regulations 2020, employers have a legal obligation to ensure staff they know have tested positive for Covid-19 or have been in close contact with somebody who has, do not come to work. Failure to comply with this law can result in a £1,000 fine for the first offence, rising to £10,000 for repeated offences. Workers must also inform employers if they are required to self-isolate.

Watch out for – breaching your duty of care to homeworkers

All employers have a duty of care to protect the health, safety, and wellbeing of their employees and visitors to their workplace. This includes homeworkers. Ensure that you have homeworking staff conduct a risk assessment relating to their workstation setup. HSE has provided a useful checklist for this. Also, keep in regular contact with homeworkers to make sure they are not feeling isolated and stressed. Out of sight, out of mind could result in a future Employment Tribunal claim so check in regularly and give all employees a point of contact who they can call if they need support.

The government’s aggressive rollout of the vaccination programme provides hope that this will be the last big lockdown we have to battle through. For employers, navigating the ever-changing laws and guidance is a challenge in itself. Our team is here to support you and provide bespoke advice for your business. The cliché “it is always darkest before dawn” has been regularly bandied about over the past few weeks, but in this case, it is likely to be true.

To make an appointment to discuss any aspect of employment law please email or phone our helpdesk on (0)20 8349 0321.

Redundancy fears as the Furlough Scheme comes to an end

In March 2020, Chancellor Rishi Sunak announced an unprecedented government-sponsored furlough scheme designed to protect jobs during the pandemic. The scheme meant that the UK government would pay the 80% salaries of furloughed workers up to a maximum of £2,500 a month, in a bid to prevent job losses while lockdown restrictions meant that companies across the country couldn’t operate as usual.

As restrictions are lifted, the scheme is set to come to an end on October 31st. Without the government’s furlough pay, many people in the UK worry that businesses will start cutting jobs in the weeks leading up to this date. If companies either aren’t operating at full capacity or aren’t making the same income they were before the pandemic, it’s easy to see why job losses and redundancies might be the likely outcome.

How has the UK fared so far?

2020 has already taken a toll on the UK’s employment levels. Since March, the number of employers in the UK planning 20 or more redundancies has consistently been at least twice as many as in the same month in 2019. 695,000 UK workers have been cut from the payrolls of UK companies since lockdown hit, and many more could be set to join them once the furlough scheme ends.

Sunak has repeatedly ruled out an extension of the furlough scheme beyond October, but what does this mean for the coming months? The Trades Union Congress general secretary Frances O’Grady thinks government intervention is the only way out, saying: “If the government doesn’t act, we face a tsunami of job losses”, which was backed by governor of the Bank of England Andrew Bailey who suggested some sectors would benefit from further help, having previously backed the decision end the scheme in August.

Does employment law offer any protection from redundancy?

It’s possible to challenge a redundancy with proper legal advice, although if your employer is making you redundant alongside many other employees as part of Covid-19 cuts, it’s unlikely your appeal will be upheld. However, some protections are in place: you are still entitled to the full 45 days redundancy notice, and the government has recently brought in a new law to ensure that furloughed employees receive redundancy payments based on their full salaries, rather than their furloughed salaries.

For help and advice on matters relating to employment law, please get in touch with our employment team today by email or call (0)20 8349 0321.