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Time to end unfair leases on new build homes says government

Selling new-build houses on a leasehold basis in England could soon be banned under government plans to crackdown on what is seen as a growing problem.

Flats can be continued to be sold as leasehold but ground rents will be dramatically reduced under proposals, subject to an eight week consultation, put forward by Communities Secretary Sajid Javid.

Enough is enough

Pointing to examples where ground rents were doubling annually, he said: “Far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents.

“Enough is enough. These practices are unjust, unnecessary and need to stop.”

The leasehold system has existed for a long time but historically, has been associated with flats, reflecting the need to cover communal upkeep and maintenance.

Traditionally, a house is sold as a freehold property meaning the buyer owns the building and land it is built on outright.

One in five private homes in England now leasehold

But the trend for new build houses being sold as leasehold has accelerated in recent years and a recent government report found that one in five private homes in England is now leasehold.

Leaseholders typically pay ground rent to the freeholder but can be caught out by clauses allowing for dramatic increases in these fees.

When they buy the house, they are initially reassured by being given a long, 999-year lease but when they enquire about buying the freehold later, find it prohibitively expensive.

Examples include:

  • A 22-year-old who, seven years after the purchase of a £155,000 new-build home she had acquired with a 999-year lease, tried to buy the freehold only to find that the developer has sold it to another company who wanted £32,000.
  • A woman who bought a house built by a developer in 2011 with a 999-year lease. When she later tried to buy the freehold, which had again been sold to another company, she was told it would cost her £40,000, one third of the property’s value.

Escalation in ground rents

Historically, annual ground rents on properties with a long lease were low, often around £5, so there was little value in reversion to freehold.

But now ground rents are much higher, often around £300 a year, with some contracts saying this will double every 10 years – valuable income for the company that buys the freehold.

Fees and charges

It remains to be seen how far the proposals will go. Where a property is sold leasehold, the lease commonly includes restrictions requiring consent from the landlord for making changes to the property, such as extensions or conservatories, and requiring notices to be given on change of ownership.

The fees that are then charged for dealing with the provision of consents and dealing with changes of ownership have long since been controversial and the subject of recent campaigning. The issue extends to both leasehold houses and flats, and to freehold houses, subject to modern rentcharge provisions.

Statutory rights

Owners of freehold houses do already have the right to buy their freehold when they have owned them for two years, or to the grant of a new lease. The purchase price if it cannot be reached by agreement can be determined by Tribunal. The right to a new lease is for a further 50 years to be added to the lease, and the terms include a modern ground rent renewable after 25 years. None of the existing statutory rights whether for houses of flats are easy to navigate and are not for the faint hearted.

Making future leases fairer

The Department for Communities and Local Government (DCLG) said the terms of some leases were becoming ‘increasingly onerous’ and said the proposals were aimed at making future leases fairer by reducing ground rents so they “relate to real costs incurred”.

For specialist legal advice on all conveyancing matters, including buying a leasehold property, please contact our conveyancing team by phone or by calling in to one of Wards Solicitors’ 11 local offices.

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