Summary

The residential market has attracted a huge amount of attention and pledges of reform from all sides of the house.  There has been a constant stream of consultation on both long leaseholds and short term lets.  The latest consultation into the abolition of s21 closed on 12 October with respondents concerned that whilst an abolition of s21 notices on the face of it seems straightforward there are a number of areas of concern which need to be closely thought through.  We will be commenting on these in the future but in the meantime we summarise below the latest position on leasehold reform and the various policies proposed by other parties.

Leasehold Reform - where are we now?

Comments on the government consultation “Tackling unfair practices in the leasehold market” closed on 19 September 2017.  There were over 6000 responses to that consultation and although the Government committed to action little has been taken given the level of topics for consultation.  So where are we now? 

In short the issues are still being debated by the House of Commons, who most recently did so on 2 October for half an hour.  Government is somewhat distracted at the moment, but they have committed to legislation (when Parliamentary time allows) to deal with the following broad issues:

• That all houses will be sold on freehold (except in exceptional circumstances); and
• Ground rents on any future leases (that meet the exemption) can charge only a peppercorn rent so leaseholders will not be charged when they receive no material benefit.

There have been more consultation papers issued and more research commissioned. The Competition and Markets Authority has launched an investigation into miss-selling and onerous lease terms; unreasonable fees have been investigated and legislation enacted (Tenant Fees Act 2019) and industry pledges sought from housebuilders.  A detailed summary of where this area of reform has reached can be found in the Briefing Paper issued on 6 August 2019.

Themes of the most recent debate were clearly intended to keep matters on the agenda and it was stressed that:

• Ratcheted ground rents combined with high service charges are sterilising sales and impeding housing stock movement;
• The sale of houses on leasehold must be abolished in all but the most extreme circumstances (shared ownership properties, community led development, National Trust and some Crown property);
• Government is seeking legal advice on how it could unpick existing contracts but the focus is likely to be on streamlining and simplifying the enfranchisement process to ensure leaseholders can buy their freehold in a straightforward and inexpensive way (also the subject of proposed reform);
• The housebuilders pledge to identify any lease where rents double more frequently than every 20 years and contact the leaseholder to amend the contract where necessary, has only attracted 60 signatories to date;
• There should be a right of first refusal to ensure freeholders offer the freehold to the leaseholder before any third party;
• An independent body should be set up to arbitrate/come up with a sensible cost to purchase freehold; and
• Freeholders should be able to challenge the reasonableness of service charges.

A populous of MPs is trying to keep residential reform on the agenda against all odds and distractions.  We will have to see how they get on post 31 October…

Risk overview - if there is a change of Government

HIGH RISK	MEDIUM RISK
Increased tax on second homes/investment properties – higher rate of CGT/increase in additional SDLT rate Introduction of progressive property tax (to replace Council tax) based on regularly updated property values with higher rates for second homes/investment properties/empty properties SDLT changes Measures intended to remove the appeal of second homes/investment in residential real estate If Labour come to power with a majority – abolition of non-dom status	Private rented sector - cap on annual rent & restrictions on ability to evict tenants

CONSERVATIVES

UK Property / Land

Tenants in new housing association properties to be given the right to shared ownership of their home.
Source: 5 Key Points.

Private rented sector

Abolition of assured shorthold tenancies.
Source: A new deal for renting – Government consultation

LABOUR

UK Property / Land

Annual levy on second homes equivalent to double the rate of council tax.
Source: Announcement in 2018

• Replace council tax with a progressive property tax based on regularly updated property values, with rates set nationally – payable by owners not occupiers/tenants. Empty houses and second homes should be taxed at a higher rate, and a surcharge should apply for properties owned by non-residents, and non-doms.
• Phase out SDLT for those buying homes to live in themselves – but retain it for dwellings purchased by non doms, companies, and all second homes and investment properties.
• Increase in the Annual Tax on Enveloped Dwellings (ATED) and a removal of the exemption for properties under £500,000.
• Higher rates of CGT for second homes/investment properties – at least in line with income tax rates.
• in the Annual Tax on Enveloped Dwellings (ATED) and a removal of the exemption for properties under £500,000.
• Higher rates of CGT for second homes/investment properties – at least in line with income tax rates.
  Source: Land for the many

Private rented sector

• Cap on annual permissible rent increases within tenancies, at no more than the rate of wage inflation or consumer price inflation (whichever is lower). Mutually agreed rent increases would be permitted, and landlords would still be able to set the rent at any level when advertising the property for rent to new tenants.
• Permitted grounds for eviction within the first 3 years of a tenancy should be more limited - e.g. excluding a right to repossess the property in order to renovate or sell (this extra protection would not prevent landlords selling to their tenants or another landlord within the first 3 years of a tenancy).
• Increased eviction notice periods and compensation (equivalent to 3 months’ rent) for tenants who are forced to move through no fault of their own.
• 15% tax on the price of any UK land or real estate purchased by companies directly, or indirectly, owned in secrecy jurisdictions.
• Extend the right to roam to all uncultivated land and waterways (excluding gardens and other limited exceptions), and provide for a new urban and suburban right to roam.
• Note: these measures are specifically designed to remove the appeal of the buy-to-let market and second home ownership.

LIBERAL DEMOCRATS

UK Property / Land

• Levy up to 200% council tax on second homes and ‘buy to leave empty’ investments from overseas.
• Increase SDLT surcharge on additional properties.
  Source: A fairer share for all

THE MAYOR OF LONDON

Private rented sector

• Replace Assured Shorthold Tenancies with Open Ended Tenancies.
• Notice periods – minimum notice periods by landlords will be extended to four months from the current two month period.
• Possession grounds – possession grounds will be amended to allow for tenancies to be ended where the landlord or their family needs the property for their home, if it is to be sold or works are needed but the landlord will be required to pay compensation for using a no fault ground.
• Possession claims for arrears can only be commenced if the equivalent of 3 months’ rent is owed but tenants will need to bring arrears down to under 1 month’s rent in order to avoid a mandatory possession order.
• Housing Court – wider court reforms are required, which includes access to legal aid and the establishment of a ‘Housing Court’.
• Rent controls – mandatory registration of landlords with a private rent commission established to assess and manage a staged reduction of rents over a number of years with a possible exemption for BTR.
  Source: Mayor’s Blueprint

THINK TANKS

Capital Gains Tax

• Retain CGT exemption for principal residences
  Source: The Institute for Public Policy Research Centre for Economic Justice – Just Tax report published September 2019

• Introduce time-limited CGT reduction for owners of multiple properties looking to exit market.
• Increase an individual’s annual exempt amount for two years if selling an additional property to non-owners.
• Scrap CGT uplift upon death, at least for additional residential properties and assets qualifying for IHT business property relief or agricultural relief.
  Source: Resolution Foundation

• CGT exemption on homes not shares increases house prices so reduce CGT on shares.
  Source: Institute of Economic Affairs

UK Property / Land

• Abolish SDLT – at least for primary residences or significantly raise thresholds (to £500,000 or £1m) and cap top rate (at 5%).
  Source: Centre for Policy Studies

• Halve current rates of SDLT on main properties.
• Replace council tax with a new progressive property tax based on up-to-date property values, with a tax-free threshold set at the value of the lowest-value tenth of properties in each region and a surcharge on high-value properties. Liability for tax should be shifted from occupiers to property owners, with each owner only having one tax free allowance.
  Source: Resolution Foundation

• Cut SDLT rates to 2010 levels and simplify.
  Source: Institute of Economic Affairs