There’s been a crisis of confidence in the leasehold market.
Government, Parliament, and the Law Commission have all separately identified, and are consulting on, a number of issues with the current system. The question is whether these can be solved by changing professional and market practices, as well as legislation.
Homebuyers of leasehold properties deserve sympathy. Moving house is notoriously stressful, so when trying to deal with relocation, as well as family and work obligations, it must be tempting to avoid reading a 50-page lease.
There are undoubtedly inconsistencies in the standard and contents of lease reports provided by lawyers up and down the country.
Some lawyers and conveyancers don’t consider that they can take the time needed to explain the lease to their client. This is because the fee they’re able to charge often only covers the cost of carrying out the legal transaction, not advising on its terms.
How many purchasers read a lease report in full? Does the excitement of exchange and completion lead them straight to the report summary, and signing the contract? Either way, there seems to be a vital piece missing to this puzzle.
Setting the standards
One practice that might help (which Irwin Mitchell has proposed in its response to the current consultations) is the introduction of standard form residential leases. But drafting these wouldn’t be straightforward, given the complexities of each building. There would need to be various precedents for the different types of properties (terraced, converted, purpose-built), and a single schedule including specific individual provisions to allow for some flexibility.
An additional proposal (also submitted by Irwin Mitchell to the HCLG inquiry) is to develop a standard form of lease report with questions that must be answered in all cases, to be used by all lawyers across the country. Again, this could help a purchaser when they review their lease. The report could include a table informing purchasers whether particular clauses are present in the lease, and show them where those clauses are located. Leases already have to include a “prescribed clauses table” for Land Registry purposes, which explains where to find particular text that needs to be put on title registers. Surely purchasers should have the same level of guidance, if not more?
The table could, for example, point the purchaser to the definition of any ground rent, set out the initial amount, and clarify where, how and when that rent is to be reviewed. The legislation introducing these tables could mandate that the lease and the table contain a clear worked example, setting out how the rent would increase in the future. It might be more feasible to have a purchaser first read the table and the clauses pointed out in it, rather than wade through the entire lease.
An informed decision
This standardised reporting approach is already used in commercial property conveyancing, so it could be easily adopted. These proposals wouldn’t replace the need to review the lease, but would make it less forbidding. In turn, this would make it more likely that purchasers would review and understand the terms they’re signing up to.
Some would argue the leasehold system is far from perfect. But the alternatives, such as the Commonhold scheme, also leave a lot to be desired. While the concept of leasehold ownership is easily misunderstood, a uniform approach implementing the above proposals would go a long way to providing transparent advice and clarity on lease terms.
For now, the government will continue to consider the various consultations into the leasehold system. Purchasers should be vigilant when reviewing their lawyer’s report and the lease terms themselves, and raise any concerns before exchanging contracts.
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