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Leasehold system “needs to be reformed”

The housing, communities and local government committee has stated that the current leasehold system is not working in customer’s best interests and needs to be reformed.

Citing accusations of mis-selling and onerous lease terms, the committee called on the government to intervene in a number of ways, such as introducing a standardised key features document, which should “very clearly” outline lease and fee details, banning financial incentives for the use of a particular solicitor, and requiring ground rents on new leases to be set at zero.

The committee says that it is clear that many leaseholders were “not aware” of the differences between freehold and leasehold at the point of purchase.

Regarding these existing leaseholders, the committee notes that while “difficult,” it would not be “impossible” to form legislation that would remove onerous ground rents and adds that these rents “should be limited to 0.1 per cent of the present value of a property, up to a maximum of £250 per year.”

The committee also calls upon the Competition and Markets Authority to investigate mis-selling in the leasehold sector and to draw up plans for compensation amounts.

Furthermore, the committee also asks the Law Commission to “conduct a more comprehensive review of leasehold legislation.”

Overall, the MPs concluded that commonhold, which was proposed as an appropriate alternative to leasehold by the Law Commission in early December last year, “becomes the primary model of ownership of flats in England and Wales, as it is in many other countries.”

The committee adds: “There is no reason why the majority of residential buildings could not be held in commonhold; free from ground rents, lease extensions, and with greater control for residents over service charges and major works.

“We are unconvinced that professional freeholders provide a significantly higher level of service than that which could be provided by leaseholders themselves.”

The government, the CMA and the Law Commission have two months to respond to these recommendations.

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