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Gove urged to close ‘loophole’ in leasehold crackdown

Michael Gove's signature bill promised to end extortionate leasehold prices for thousands of households
Michael Gove's signature bill promised to end extortionate leasehold prices for thousands of households

Michael Gove has been urged to close a “loophole” that allows building companies to sell freeholds to private companies without offering it to leaseholders first.

Conservative MP Bob Blackman raised concerns at the final reading of the leasehold reform bill on Tuesday, arguing that laws currently allow firms to sell freeholds to firms that exploit “every aspect of the freehold”.

It was one of several concerns raised by MPs about the Levelling Up Secretary’s signature bill, which promised to end extortionate leasehold prices for thousands of households.

The Right of First Refusal is a legal requirement that must be issued by a landlord under the tenant act. It allows qualifying residents to purchase the freehold before it is offered to an external sale.

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However, current legislation gives developers at least two ways to circumvent the Right of First Refusal. A builder can either arrange to sell the freehold at a future date to a third party investor so long as that agreement is created before they sell the first flat, or they can transfer the ownership of the freehold to a company and then sell the company after two years.

These loopholes have been used to stop many flat buyers from owning a share of the freehold and having control of their site.

Mr Blackman said that banning this practice should be included in the legislation, which is about to progress to the House of Lords.

He said: “Surely we can close this loophole and close it this afternoon by ensuring that the freeholder must give the leaseholder first right of refusal to purchase the freehold.”

Responding, housing minister Lee Rowley said Lee Rowley: “I do understand the point he is making. I hope that some of the changes that are within this bill should mean that the acquisition of the freehold is much easier [for leaseholders].”

Labour MP Clive Betts, chairman of the Levelling Up, Housing and Communities Committee, has put forward a new clause which seeks to provide such rights of first refusal.

It comes after a number of cases revealed how leaseholders were handed surging ground rents and extra charges by firms in recent years.

Some residents have had to pay for “terrorism insurance” as part of fees under the leasehold model, The Telegraph revealed last year.

Neil O’Brien, a Conservative MP, read out the words of a constituent living in a leasehold property managed by a company called FirstPort, telling the Commons: “Our Bill for the year includes property damage, public liability insurance [and] terrorism insurance.”

He added that, along with other fees from FirstPort, his constituents faced paying £74 more every year. He added: “You might be asking why are residents in the estate having to pay terrorism insurance for a fence, and that is a really good question to which I don’t know the answer.”

The leasehold bill’s main provisions would make it cheaper and easier for leaseholders to extend their lease and buy the freehold, increase the standard lease extension term to 990 years and reduce ground rent to a peppercorn of zero financial value.

The legislation would also improve the transparency of service charges and ensure leaseholders receive key information on a regular basis and give leaseholders a new right to request information about service charges and the management of their building.