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Clarification over VAT on fee cap | more on leasehold reforms | estate charges for freeholders

28 June 2019

Newsflash – update

Clarification over VAT on fee cap | more on leasehold reforms | estate charges for freeholders

Government yesterday published its full response to last year’s consultation into unfair practices in the leasehold sector. The document, “Implementing reforms to the leasehold system in England”, sets out a summary of the consultation responses together with government’s own conclusions.

Government received 1237 responses to the consultation. Of those, 1029 respondents identified themselves as private individuals and 208 as replying on behalf of an organisation. Responding organisations included legal firms, representation groups, managing agents, investors, developers and of course IRPM.

Government intends to progress the measures set out in their response. Legislation will be required and the Parliamentary machinery and timetable is rather distracted by Brexit right now. A window might be found to get the legislation through more quickly, but otherwise you can expect primary legislation of this type to take around two years to come into force.

Clarification over VAT on fee cap

Further to yesterday’s Newsflash, we are pleased to clarify the position on VAT when charging a fee for the provision of information for a leasehold pre-sale pack. Secretary of State James Brokenshire yesterday announced that the fee for providing leasehold information would be capped at £200. Against the spirit of Rule 3.18 of the CAP Code, which states that quoted prices to consumers must include VAT, Mr Brokenshire quoted this sum net of VAT. Since then, MHCLG have released the government’s response to last year’s consultation into unfair practices in the leasehold sector and in here the position is clear. The response states “We will therefore set a maximum fee of £200 plus VAT for producing leasehold information in the form of a LPE1 pack.” Government goes on to say that it will still expect freeholders and managing agents to charge a fee which reflects the reasonable cost of producing the information and that the £200 plus VAT fee is a maximum sum. It is intended that, when setting the fee, government will include a mechanism to ensure that the fee can be amended to reflect changes in inflation.

There are occasions when leaseholders need to refresh the information, particularly when the sales process becomes extended or goes across financial year ends. Government’s position is that the charge for updating the information should be reasonable and should be less than the original charge for producing the whole pack. Government therefore intends to set a maximum fee of £50 for updating the leasehold information. On this fee, even the full government response is silent on the VAT position and we await clarification.

Nominal ground rents

You will recall that government was contemplating reducing ground rents for newly established leases to a maximum of £10. Government has reconsidered this proposition and has concluded that ground rents should be reduced to zero. This will apply to all new leases going forwards, save for a few exceptions such as shared ownership properties for housing associations.

Exemptions from the reduction will be provided for retirement properties and community led developments, also for financial lease products such as equity release plans and home purchase plans (lifetime leases and Islamic/Sharia compliant finance) where there is a non-assignable lease.

Ending the use of leasehold for houses

The use of leasehold tenure for houses is to be brought to an end, except when necessary, for example. Following legislation, it will not be permissible for applicants to register a non-compliant residential long lease on a house with HM Land Registry. If the lease is found to be contrary to the pan, the consumer will be entitled to zero cost enfranchisement as a means of redress. Exemptions to this ban, such as for shared ownership properties and community led development, some National Trust land and excepted sites on Crown land, will have their ground rents restricted in line with the future ground rent policy.

Charges for freeholders for maintenance of common areas

There has long been a discrepancy in the rights of leaseholders and freeholders to challenge unreasonable service charges. Government intends to legislate to give freeholders on private and mixed tenure states equivalent rights to leaseholders to challenge estate rent charges, seeking to replicate the provisions of the Landlord and Tenant Act 1985. The intention is to go further, giving freeholders a right to apply to the First-Tier Tribunal to appoint a new manager to manage the services covered by the estate rent charges. In this way, they are seeking to replicate the provisions of the Landlord and Tenant Act 1987.

Other notes

The report sets out some of these reforms in the context of other measures seeking to address some of the wider issues in the market. These include the establishment of a working group of housing experts, including IRPM, chaired by Lord Best to look at raising standards across the entire property agent sector.

Government also notes that it is trying to improve the advice available to leaseholders. They have been working with Trading Standards to provide leaseholders with information on the various routes to redress available to them if things go wrong. They have also produced the How to Lease guide to help those living in a leasehold property or who are thinking of buying one.

IRPM regularly reminds government that, combined with the powers of the National Trading Standards Estate Agency Team, they already have the power to ensure that basic leasehold terms are included in estate agency sales information under the Consumer Protection Regulations 2008. NTSEAT have finally produced a consumer guide for potential buyers confirming that the main terms of the lease are “material information” that “would affect the transactional decision of the average consumer” but stopped short of saying the same to estate agents. We urge government to confirm this advice to estate agents so that buyers are given this information upfront at the point of first enquiry. This would mean that buyers would know what they are buying and mortgage valuers would be able to value the property on its true lease terms, rather than relying on assumptions which, when found to be incorrect, delay the mortgage while the property is revalued. IRPM is also working with leading lenders and surveyors to push for this transparency in the home sales process. NAEA Propertymark also support our view but we are not seeing much improvement in the information that estate agents are providing to buyers.

Government response document

The full government response can be found here

 

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