The legal horrors of the housing industry

The housing industry must pay for their mistakes or face the consequences. That was the recent message from the Housing Secretary Michael Gove as he continues to apply pressure on those responsible for the current cladding crisis.

Where are we now?

While the government remains optimistic the industry will take it upon themselves to do the right thing, Gove continues to take a hard stance as he recently announced the government will have the power to block developers from building and selling homes.

In several statements made over the past few months, Gove makes it clear developers have had it too good for too long – and there are a number of changes that must be made to redress the balance to ensure consumers are treated fairly: “There are 101 changes we want to make…we’ve essentially got a cartel of volume housebuilders who operate in a particular way, and there are all sorts of unhappy consequences”.

For many years, leaseholders have had to stand by and watch wealthy developers continue to profit from developments, while they themselves struggle to keep up with demands for payments. All too often I come across concerned leaseholders querying service charge demands from their freeholders. Because of the individual sums involved many leaseholders will not pursue the matter as it’s simply not cost effective for them to do so.

While it is advisable to form a relationship with other leaseholders in the building with a view to taking a consolidated approach to ongoing issues, it is often difficult to co-ordinate and time consuming, the result of which is that service charge demands often remain unchallenged – particularly when leaseholders are faced with the threat of enforcement action and increased costs by their managing agents and freeholders for non-payment.

Who gets the benefit?

Most modern leases are drafted in favour of the freeholder, with little or no room for negotiation. This puts leaseholders in an unfavourable position when seeking to challenge their service charges and other unfair terms. The Competition and Marketing Authority (CMA) recently conducted an investigation into ground rent clauses in leases that tend to see ground rents double every 10 to 15 years, which can make it difficult for leaseholders to sell or mortgage their properties. The CMA believes the original doubling clauses were unfair terms and have so far secured undertakings from fifteen business to remove the costly ground rent terms. Due to the CMA’s intervention, thousands of leaseholders will now see their ground rents remain at the original amount. This was a victory for the Housing Minister, who commented: “I welcome their ongoing success in eradicating this unacceptable treatment of leaseholders from the housing market and freeing thousands from such inflated costs. Others must now follow suit, as our work to help all leaseholders continues”.

Building Safety Bill

The Building Safety Bill (once passed) will also introduce a radical shake up of the current system, including a retrospective extension of the limitation period for bringing claims and the introduction of a new building safety regulator. The regulator will ensure greater transparency between freeholders and leaseholders and building owners will be required to manage safety risks with clear lines of responsibility. The new measures introduced by the government are designed to protect leaseholders from all the costs incurred by building owners by ensuring the works carried out are proportionate and necessary.

Conclusion

Gove’s position is loud and clear. Developers have been allowed to take advantage of their bargaining position against vulnerable consumers and reaped significant rewards. The time has now come for change – and developers can expect a radical shake up of the current system over the next few years.

With the threat of being penalised both financially and commercially, the hope is developers and manufacturers will finally take responsibility for the pain and suffering they have inflicted on innocent leaseholders.

While, in theory, this seems like a good idea it remains to be seen how the government will implement such drastic measures which may result in a shortage of new homes, or the additional cost to the developer being passed on to the consumer in other ways. What is clear, however,  is  if developers do not take it upon themselves to implement change, then we can expect to see further intervention from the government or aggrieved individuals seeking to bring civil claims.

Gurpreet Sanghera is a partner at Simkins LLP: simkins.com