Michael Gove, the Secretary of State for Levelling Up, is facing criticism for new legislative changes that allegedly dilute the rights of leaseholders in the UK. The Tory party’s latest leasehold bill, which was a significant pledge in their manifesto, has officially passed in Parliament as of last Friday. The bill was intended to bolster the rights of homeowners by “empowering” leaseholders and “improving their consumer rights”. However, the final legislation appears to leave significant gaps that might allow exploitation of leaseholders.
From Courts to Tribunals
A notable change introduced by the bill is the prohibition of leaseholders initiating court actions against unfair service charges. Previously, leaseholders had the right to demand a detailed summary of annual costs, including service charges, and could undertake private criminal prosecutions against freeholders if they failed to comply. These rights, established under the Landlord and Tenant Act of 1985, have been replaced with a tribunal system where the maximum fine for non-compliance is £5,000.
Critics argue that the fear of criminal prosecution previously acted as a stronger deterrent against freeholder malpractices. Karryn Beaumont, a leaseholder, shared her experience with the previous system when she forced a freeholder to provide essential financial documents after initiating court action. The new system, which caps fines at £5,000, is seen as insufficient to deter misconduct by freeholders, who can potentially recoup these fines from leaseholders themselves.
Criminal vs. Civil – A Weakening of Leaseholder Protections
The shift from potential criminal penalties to civil fines is seen by many as a weakening of leaseholder protections. Lord Bailey, a Conservative peer, expressed deep concerns that this change would encourage dishonest freeholders and managing agents to exploit leaseholders by withholding crucial service charge information.
Furthermore, Harry Scoffin, the founder of the anti-leasehold campaign group Free Leaseholders, criticised the legislation for decriminalising what he terms as “service charge abuse”. According to Scoffin, this removes a critical safeguard for leaseholders, giving dishonest agents and landlords the opportunity to engage in fraudulent activities with little fear of significant repercussions.
Other Aspects of the Reform and Continued Criticisms
Despite promises, the reform does not abolish the leasehold system nor does it reduce ground rents, which are payments leaseholders must make to landlords. Critics, like Tom Dougals from Propertymark, argue for more comprehensive measures, including stricter regulations and qualifications for those involved in leasehold transactions, a reduction of ground rents to nominal amounts, and addressing issues related to event fees.
Political and Public Reactions
The opposition has been vocal about the shortcomings of the bill. Matthew Pennycook, the shadow housing minister, highlighted that his party had plans to end the leasehold system and introduce commonhold as the default tenure, although recent developments saw these promises being pulled back.