7 May 20247 May 2024 derek

Our response to DLUHC’s Call for Evidence on Jointly Owned Leases

Politics

In a press release in November 2023, the Government promised that the Leasehold and Freehold Reform Bill (LFRB) would include measures to ensure “that the leaseholder protections are not unfairly weighted against those who own properties jointly”. Yet on 1^st May 2024, during the Committee Stage of the Bill in the House of Lords, Baroness Scott of Bybrook, DLUHC’s minister in the Lords, seemed to indicate that the Government might be preparing its excuses for not fulfilling its commitment to correct the unfairness to leaseholders who own properties jointly. She said, “Changing the leaseholder protection regime so that it is linked to a share of ownership, rather than individual properties, would also introduce an unnecessary level of uncertainty and complexity into the protections.”

The minister made no mention at all of the Department’s recent call for evidence on joint ownership, which ran for a short two-week period up to 7^th April – and made no suggestion that proposals to address this issue would be brought forward “in due course”. 

So, what is going on – and why is it essential to address the unfair disadvantage affecting these leaseholders?

No leaseholder is responsible for the building safety crisis

Let’s start by being absolutely clear: ALL leaseholders are completely blameless when it comes to the building safety crisis, which is a collective failure of the homebuilding industry and successive governments, which failed to provide adequate regulation and oversight. Despite this, some leases are non-qualifying for the “leaseholder protections” (a legal cap on the costs of remediating building safety defects), if an individual owns – or has an ownership interest in – more than three UK properties. 

Some stakeholders, including DLUHC ministers, have attempted to suggest that non-qualifying leaseholders – typically small buy-to-let landlords – are akin to any other “commercial investor”, such as a building owner or freeholder, which is disingenuous to say the least. Leaseholders have no right to perform intrusive building assessments before purchasing their lease, no insider knowledge about unsafe construction practices, and are not an accountable person in law. There is also no wealth test for non-qualifying leaseholders, while freeholders can avoid responsibility to pay if they do not meet the “contribution condition”.

An unintended error in the legislation

As noted in our response to the call for evidence, a poll carried out by our sister group, Non-Qualifying Leaseholders, shows that in 50% of cases, non-qualifying leaseholders exceed the property ownership threshold simply because they co-own properties with someone else. They would not exceed the limit if partial ownership was counted fairly. In some cases, none of the properties even require remediation or they are covered by the developer self-remediation contract – but the stigma of the non-qualifying status prevents them from selling or remortgaging, so they are still harmed by the current unfair approach. 

Jointly held properties most commonly relate to married couples, but there is an infinite range of possible circumstances – for example, co-owning a property with an ex-partner, helping a child or other family member to get on the property ladder if they cannot qualify for a mortgage or afford the cost of UK housing by themselves, or pooling resources to buy property with siblings or friends. 

To understand how the Building Safety Act currently discriminates against joint ownership of properties, imagine a couple who each own three properties individually. They would be regarded as qualifying leaseholders, with “leaseholder protections” on up to three properties each. But if the same two people jointly own four properties between them, they would be regarded as non-qualifying leaseholders – losing protections on all except their main residence (which is often a house rather than an affected flat, so the supposed protection of the main residence is largely irrelevant). 

In our view, this “interpretation” is both illogical and unfair. A couple who jointly owns buy-to-let properties would each pay tax on the rental income based on their 50% share of each property, so it is inexplicable that joint ownership is not treated in the same way for building safety purposes. 

Such an “interpretation” has also never been made explicit – to the extent that it is most likely an error that has arisen due to poor drafting, or poor implementation, of the legislation. Our campaign team can recall no occasion when there was any discussion or debate about the treatment of jointly owned or co-owned leases during the passage of the Building Safety Bill, so we do not believe this was something that was ever “decided” by the will of parliament. There is also no reference to jointly-owned or co-owned leases or their treatment in the Building Safety Act itself – despite the recent answer from DLUHC to a parliamentary question tabled by the shadow minister for building safety. 

We were pleased to see the Government, rather belatedly, collecting evidence on this issue but have expressed concerns that the questions were not framed sufficiently clearly to maximise the opportunity for good data collection. While DLUHC’s questionnaire also aimed to collect evidence from building owners or freeholders, it did not appear to take a robust approach to this; for example, it did not ask whether the building owner met the contribution condition, or ask how and when they had collected evidence of the number of leases in their building(s) which are both jointly-owned AND non-qualifying. 

Afraid to die and leave my wife of fifty years with this nightmare

DLUHC must take the opportunity provided by the call for evidence, and listen to the voices of the ordinary people whose lives have been unjustly impacted by their building safety policy – including Richard and Sue, a retired couple in their 70s. 

“My biggest worry now is that I die from my cancer and leave my wife of 50 years with this mess that has been created through badly thought out legislation.”

Richard, retired leaseholder

Richard retired from his business due to a heart attack and recently had life-saving surgery for cancer. Due to ill health, their pension contributions fell short, so they decided to venture into buy-to-let property to provide sufficient retirement income. In February 2022, they owned four low-value flats in Gateshead, valued at £100-130k each, all of which were mortgaged – and this makes them non-qualifying leaseholders. Two flats are affected by cladding and non-cladding defects; the other two had to be sold to try to reduce mortgage liabilities and gather funds for pending remediation bills. As a result, the rental income they were relying on in retirement has significantly reduced and they are living in a nightmare of stress and worry. The affected properties are unsaleable and cannot be remortgaged. 

Their only hope is that the Government brings forward amendments to ensure that leaseholder protections are not unfairly weighted against those who hold properties jointly. Recognition of the value of the property portfolio or a financial assessment for non-qualifying leaseholders would also help – rather than assuming that anyone owning more than three UK properties must automatically have “broad shoulders” and should therefore pay the price for industry and government failures. A requirement for the life-changing costs of remediation to be spread over 10 years, just as they are for qualifying leaseholders, would also have prevented the threat of huge remediation bills being payable with 28 days’ notice, which is what forced Sue and Richard to sell two properties that were a much-needed income stream in retirement. 

Richard’s submission to the call for evidence lays bare the heartbreaking consequences of the Government’s unfair and illogical approach. He said – 

“The last three years have been a nightmare not knowing how I will be able to pay for repairs, mortgages etc. My retirement has been totally destroyed, causing many sleepless nights worrying and being frightened to spend any money, as all surplus monies are being used to try and pay down existing mortgages before they are repossessed. My biggest worry now is that I die from my cancer and leave my wife of 50 years with this mess that has been created through badly thought out legislation.”

The time for the Government to act is now.

The Government has limited time left to bring forward amendments to the LFRB to address the unfair treatment of jointly held leases – and if it fails to do so, we shall review our options to challenge this. The date is yet to be announced for the Report Stage of the Leasehold and Freehold Reform Bill, but we expect this to begin in around two weeks’ time. 

Read the call for evidence submission by End Our Cladding Scandal

Read the submission by our sister group, Non-Qualifying Leaseholders

The post Our response to DLUHC’s Call for Evidence on Jointly Owned Leases appeared first on End Our Cladding Scandal.