Leasehold reform - what you need to know

Leasehold reform – what you need to know

Leasehold reform – what you need to know
The Government recently announced new proposals to crack down on leasehold abuses. The proposals have been designed to deliver what the Government are branding a “fairer, more transparent system for homebuyers”, with the Communities Secretary Sajid Javid laying out plans to ban new houses being sold as leasehold. Ground rents could be set to as low as zero.
Though most leaseholds are linked to flats with shared spaces, a growing number of developers have been selling houses as leasehold properties. This has been particularly common in the North West of England. There are already 1.2 million leasehold houses in England, with the number of leasehold sales swelling.

Mr Javid said “far too many new houses” were being sold as leaseholds, leaving buyers facing unfair contracts and sizeable ground rents. He branded the practices as “unjust” and “unnecessary”. The proposals are subject to an 8-week consultation. Some ground rents have been doubling each decade. As part of the proposals, legal loopholes are set to be closed in order to protect customers, some of whom have been vulnerable to possession orders. Help to Buy equity loans are to be changed to ensure the scheme is only used for new builds with acceptable terms.

Stringent charges for modifications
A significant number of buyers have been forced to pay freeholders vast sums to make minor modifications to their homes. One homeowner was charged £1,500 to make a small alteration, with a family home becoming unsaleable when it transpired ground rent was likely to reach £10,000 a year by 2060. Another homeowner was told it would cost £2,000 to buy the lease but was met with a £40,000 bill. Ground rents may be reduced so they only reflect real costs incurred and are both fair and transparent. Many freeholds are also being sold on to investment companies after homes have been purchased.

Though homes in the past have largely been sold as freehold, giving buyers complete control, growing numbers of homes are being sold as leasehold, which essentially means the buyer is in reality a tenant with a long-term rental. When a home is bought as leasehold, the freeholder retains ownership of the land that the house is built on and the buyer therefore has to pay ground rent and obtain approval if they wish to make changes to the property. Changes can include changing windows and doors and adding conservatories. Freeholders can charge for their consent if they wish.

Older properties are affected too
The problem isn’t just linked to new builds. More and more ageing properties are being sold as leasehold, making it harder and harder for buyers to purchase homes that are truly theirs. One recent report from the HomeOwners Alliance said leasehold was now the number one concern for buyers in the UK. HomeOwners Alliance chief executive Paula Higgins said the current leasehold system was a “money-grabbing scheme” that was leaving scores of homeowners “trapped” in unsalable properties.

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