The government has promised an ambitious programme of legal reform for the residential property sector in 2020.

Residential Property Law – likely developments in 2020

Intended reform will have an impact across the private sector including, housing developers, housing associations, purchasers, sellers, landlords, tenants as well as their respective agents and financial and legal advisers.

Some of the key reforms are likely to include:

Housebuilding

The Conservative manifesto set a target of 300,000 homes a year by the mid-2020s. It also stated that it would encourage a new market in “long-term fixed rate mortgages which would slash the cost of deposits” for first-time buyers, that it remained committed to both policies of Right to Buy and Help to Buy, that it would renew its Affordable Homes Programme as well as introduce a simpler Shared Ownership Model.

The Queen’s Speech which took place on 19 December 2019 has in its background paper repeated the manifesto target for new homes. In addition, the government announced:

• that there will be a £10 billion investment into a new “Single Housing Infrastructure Fund” to help deliver the roads, schools and GP surgeries needed to support new homes;

• a new National Infrastructure Strategy likely to be published alongside the Budget in March this year;

• consultation on “First Homes” which would make homes available at a discount for key workers and local first-time buyers. The background paper to the Queen’s Speech suggests that such homes will be provided at a discount of at least 30%. This discount would be secured by a covenant to ensure that the discount continued to apply in perpetuity;

• new expected Bills in respect of building safety and fire safety and a requirement that developers of new homes belong to a New Homes Ombudsman;

• whilst pledging to protect and enhance the greenbelt, the government has said that it will support modern methods of constructions and encourage the creation of “environmentally friendly homes”, termed the Future Homes Standard;

• re-introduction of the Environment Bill to include targets on air quality, waste and making biodiversity a condition of planning permission;

• legislation to permit broadband companies to establish connections where landlords refuse access and new homes to be built with gigabit-capable connections; and

• a white paper is to be published setting out what reforms are to be made to the planning system to ensure that the process is faster, clearer, more accessible and more certain for all users, including homeowners and small business. In essence, this is likely to lead to an accelerated planning system where fees are to be refunded by councils that take too long to decide on specific planning applications.

Changes to Staircasing

The government has not discarded its plan to enable leaseholders to staircase to a minimum of 1% instead of the current 10% dictated by most leases.

The change has no doubt been caused by the fact that only about 3% of homeowners belonging to shared ownership schemes staircase each year.

It remains to be seen whether the changed percentage will alter the number of owners staircasing in view of the requirement for leaseholders to pay valuation, legal and lender fees.

Ending Unfair Practices relating to Residential Long Leaseholds

In the Queen’s Speech, the government confirmed its promise to end the sale of leasehold houses by ensuring that if a home can be sold as freehold, then it will be. It has also promised to get rid of unnecessary ground rents on new leases and to enhance the rights of homeowners to challenge unfair charges. As yet no further details have been provided as to how these aims will be accomplished.

The government has also pledged to take forward programs of reform as part of the Law Commission’s residential law projects aimed at improving the position of leaseholders of both flats and houses.

These reforms potentially include:

Enfranchisement.

The Law Commission has published a report setting out the options for reducing the costs leaseholders have to pay during the enfranchisement process of extending their leasehold or buying their freehold title. The report provides three potential reforms aimed at helping reducing costs while maintaining a fair outcome for both leaseholders and freeholders. The report (which has been criticised for only tinkering with the issue of costs and marriage value) is currently being considered by the government.

Right to Manage

The Commission is due to report in February 2020 about simplifying existing legislation for leaseholders to manage their own properties.

Commonhold

The Commission is also due to report in February 2020 as to whether this concept has any hope of further development. It is hoped that the report will persuade existing leaseholders to convert to commonhold and encourage developers to develop commonhold properties in place of leasehold.

Electrical Checks for Private Landlords

Regulations made under the Housing and Planning Act 2016 will require Landlords to carry out checks on their fixed electrical installations. At the moment, these obligations only apply to licensable houses in multiple occupations (HMOs). The new obligations will be come into force for any new tenancy from 01 July 2020 and will include renewals after that date. The regulations will apply to most tenancies apart from holiday lettings.

There is a further duty on landlords to ensure that a qualified person tests the installation every 5 years and provides a report. This test must be conducted before a tenancy commences or before 01 April 2021 if the tenancy is already in place.

Landlords must also provide any new tenant with a copy of the inspection report before they occupy the property and to any prospective tenant who asks for it within 28 days of request. Local authorities can also ask landlords to supply them with copies of electrical reports within 7 days of request.

The 5th Money Laundering Directive (5MLD)

5MLD was implemented into the UK law on 10 January 2020.

The Money Laundering and Terrorist Financing (Amendments) Regulations 2019 amend the original Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. From the point of view of the residential property sector, the key change is to add high value tenancies to the regulated sector.

Applicable lettings where the monthly rent (pro rata) reaches or exceeds €10,000 (currently just under £8,500 (for at least one month of the letting).

Where 5MLD applies, the letting agent will need to have conducted a risk assessment of their business and a risk assessment of the transaction which fits within the overall business risk assessment. They will then need to have carried out the appropriate level of due diligence to identify the persons involved in the transaction and the source of relevant funds.

The Renters Reform Bill

This was introduced in the Queen’s Speech and sets out the government’s commitment to introduce a package of reforms to deliver a fairer and more effective rental market. This is likely to include:

• The end of Section 21 (“no fault”) evictions under the Housing Act 1988.

• The introduction of a lifetime deposit that can be transferred when moving from one property to another.

• The development of a database of rogue landlords and property agents.

• Improvements to the court process for landlords to make it more streamlined to gain possession.

Conveyancing Reform

There will be a report on whether referral fees should be banned in conveyancing transactions by the National Trading Standards Estate and Letting Agency Team in February 2020. There is concern that estate agents and mortgage brokers are not being transparent about fees received in respect of referrals and this is causing detriment to consumers.

Reservation agreements will be considered further by government. Under such agreements purchasers and sellers will be required to provide information and make declarations on matters relating to the property and their respective mortgage and chain status. Both sides will pay a £1,000 fee at the time an offer is agreed which will then form part of the deposit.

Opinion

Time will tell whether, Brexit trade talks permitting, there will be enough government time and impetus for any of the above reforms to actually reach the statute book. The government has announced some bold headlines for reform which are currently bare on detail.

Further Information

For further information, please do not hesitate to contact Bill Dhariwal, Solicitor and Managing Director of Lawcomm Solicitors, on DDI: 01489 864 117 or E: bill.dhariwal@lawcomm.co.uk

The above article does not constitute legal advice.