New Legislation Planned to Deal with Leasehold Properties

The government has announced a package of measures to crack down on unfair leasehold payments and high ground rents. Setting out the proposals in a written statement made on 21 December, Mr Sajid Javid, London's Lord Mayor, said that:

"It is clear that the [leasehold] system as it stands is not working in consumers' best interests. Even most developers and institutional investors on freehold accept that, in the majority of cases, use of leasehold for new build houses is entirely unjustified."

Back in September 2017, we wrote about the differences between holding a property freehold or leasehold and the government's consultation on how to stop developers making unfair charges on leasehold properties, (see "Government consultation to stop leaseholds being a property trap").

What is the issue with leaseholds?

Leaseholds have long been used in the UK in buildings where space is shared – for example in blocks of flats. In recent years, however, developers have started to sell more and more new build houses using leasehold ownership. Ground rents, that traditionally involved payment of a small annual sum, have risen and some householders have found themselves faced with unexpected, and unfair, high rents.

Government consultation

When the government launched its consultation into this problem in July 2017, over 6000 people responded – many of them leaseholders. Most were in favour of reform. Many, it appears, did not know about the costs associated with buying a leasehold house – and were certainly not prepared for its negative effect on the chances of reselling their property.

The new measures to reform the leasehold system

In Mr Javid's words, "This has got to stop". His statement sets out a summary of the proposed new measures, including:

• "introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances;
• restricting ground rents in newly established leases of houses and flats to a peppercorn (zero financial value);
• addressing loopholes in the law to improve transparency and fairness for leaseholders and freeholders; and
• working with the Law Commission to support existing leaseholders – including making buying a freehold or extending a lease easier, faster, fairer and cheaper; reinvigorating commonhold to provide greater choice for consumers; and to take forward the work in our recent call for evidence on regulating managing agents ('Protecting consumers in the letting and managing agent market: a call for evidence').

No Help to Buy equity loans for leasehold properties

House hunters should keep in mind that the government thinks it inappropriate for the Help to Buy Equity Loan scheme to be available to support the sale of leasehold houses.

Mr Javid has written to all developers to ask them to stop using Help to Buy equity loans for the purchase of leasehold houses. He also wants to encourage developers "to take early steps to limit ground rents; and to ask that those who have customers with onerous ground rent terms provide the necessary redress as soon as possible".

What now?

Mr Javid has promised to work with the Law Commission to set out solutions for the problems arising from leasehold ownership before Summer 2018. New legislation is expected to follow.

If the leasehold reforms are to achieve a fairer and transparent system and stamp out current leasehold payment abuses, the wording of such legislation will require a delicate balance between helping consumers while also ensuring there is no adverse impact on suppliers.

Welcome relief for owners of leasehold properties

The Law Society supports the proposals for reform and has said that homebuyers' interests are best served by property being sold freehold. In their December 2017 response to the government's request for evidence, Improving the home buying and selling process, the Law Society has proposed that information about whether a property is leasehold should be provided to buyers early in the process to ensure they can make an informed decision about whether to proceed with a purchase.

All of these announcements will come as welcome relief to those who are stuck in leasehold houses and unable to sell because of onerous ground rents.

Contact for further information about our conveyancing services

For further information about buying a property and issues that can arise if the property is leasehold, contact Victoria Marshall on 0161 785 3500 or make an enquiry.

Sources / Read More

• Written statement by Sajid Javid, 21 December 2017
• Improving the home buying and selling process (Law Society, December 2017)
• Tackling unfair practices in the leasehold market
• Crackdown on unfair leasehold practices, 25 July 2017 (government press release)
• New-build leaseholds to be outlawed (Law Society Gazette, 21 December 2017)

 

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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