Has the time come to Abolish Leasehold Titles?

 

‘Abolish residential leasehold titles!’

Perhaps it's not as drastic a call to arms as Shakespeare's ‘Let's kill all the lawyers’ but it is one that will certainly be popular with many flat-owners.

The Campaign for the Abolition of Residential Leaseholds (CARL) would like to see the end of what they claim are a vestige of feudal times. And as a conveyancer, I have to say that I have a good deal of sympathy with their campaign, and I suspect that many solicitors will agree.  

The Trouble with Leasehold Titles

Owners of many flats in England and Wales will have found problems arising out of the fact that they have leasehold title. Someone else will own the freehold, and can demand payment of a ground rent together with service charges and all sorts of other payments. Although some leaseholders have a share in the freehold of their property, and will have some control over what they pay, many other property owners have found themselves at the mercy of unscrupulous freeholders or their agents, who will use all sorts of legal tricks to extract money from their hapless tenants.

The fact that leaseholders are legally called ‘tenants’ does seem to hark back to feudal times, when peasants were the tenants of the lord of the manor. The system of leasehold titles has been used by lawyers for many years, and for various legal reasons it has become the preferred form of title for flats and apartments in England and Wales.  

But many of the reasons for this are quite artificial, and many other countries have found other ways to create better legal systems. Even countries which originally followed the English legal system have introduced legislation to change this.

The problems associated with providing a satisfactory legal framework for the ownership of individual residential flats has been known to Conveyancing Solicitors and property lawyers for a long time, but without changes in the law nothing could be done.

For many years the Law Commission studied the problems, and finally produced a scheme for what they called ‘Commonhold Title. ’ Under this the title for the building would be vested in a special form of company, and individual apartments would be owned outright in a way similar to freehold.

The Effect of Recent Leasehold Legislation?

Legislation was passed in 2002, but has regrettably been of little effect. The legislation set up commonhold title as an additional form of ownership, rather than converting existing leasehold titles. There was little incentive to convert such titles to commonhold, even when leaseholders already owned their freeholds. Stamp duty might be charged on the necessary transfer deeds, and there will be complications when existing owners have mortgages.  

Furthermore almost all mortgage lenders indicated that they would not accept such titles. Conveyancing Solicitors were therefore reluctant to take the risk of setting up a commonhold scheme and then finding that potential buyers could not get mortgage finance.  

It seems unlikely that anything will change without political intervention, and it is a fair bet that freeholders and their agents, many of whom are large property corporations, will be vociferous in their objection. No doubt they will complain that any move to make commonhold title compulsory for all residential premises would deprive them of their own property rights, and they would demand compensation accordingly.

Consider this; if a developer acquires land and develops an estate of freehold houses, he will recover his costs from the buyers of those properties. They will then own them outright, and will not owe anything further to the developer.  

But if flats are constructed instead, the developer can still recover all his expenses from the buyers, but will be able to make even more by selling on the freehold. The freeholder will then continue to make money out of the flat-owners in the form of ground rents, management charges, various fees and charges whenever a property is sold or an owner wants to carry out some alterations, and in all sorts of other ways like extending the term of the original lease. This looks like a good way of selling something and continuing to make money out of it!

Although it might not be a perfect solution, commonhold would certainly give owners much more control over their properties. Even if the government is not prepared to convert existing leasehold titles, there is no reason why legislation cannot be passed requiring all new developments to be sold with this form of title.

 


by admin
Monday 14th of September 2015 09:34:29 PM