October 24, 2018

End in sight for unfair new build leaseholds

This October, the Communities Secretary James Brokenshire launched a government consultation aimed at ending the practice by some developers of selling houses on a leasehold rather than freehold basis in order to benefit financially from what many people judge to be excessive and unfair ground rents.

What is a leasehold?

Many UK flats are sold on a leasehold basis. When you buy a property on a leasehold basis you don’t own the land the property is built on. As a leaseholder you rent the property from the freeholder for as long as the lease lasts, which is usually 125 years. As part of this arrangement you pay ground rent and a service charge which contributes to the upkeep of communal areas.

Houses are traditionally sold on a freehold basis, meaning the buyer owns the property and the land it’s built on outright until they decide to sell it. This is because when a house is built there is only one property on that piece of land.

The new build leasehold issue

The recent controversy stems from new build houses, some of which are part of the Help to Buy scheme, being sold as leasehold. The new consultation aims to address the argument that there is no basis for the property to be divided into leaseholder and a separate landowner when there is only one property on the land.

Some people who have bought leasehold new build homes have reported having to pay ground rents of £700 a year, with £300 a year being the average. The extra expense and uncertainty over ground rents rising can also make it harder to sell these homes.

What is the government planning to do?

The consultation is proposing that ground rents for new leases will be capped at a nominal fee of just £10. The plans are part of a wider strategy to make the housing market fairer for everyone. This has recently included a shake-up in the rental market with new legislation that makes it illegal for rogue landlords to charge unfair fees to their tenants.

The consultation will also look at changing the rules so that people who want to set up tenants’ associations to protect their rights as leaseholders will be able to do so more easily. Official recognition is not always straightforward to get, however it is necessary to have in place before a landlord has to engage with a residents’ association. This means some tenants’ groups currently struggle to get their voices heard.

The government is also planning to work in partnership with the Law Commission to make the process easier, cheaper and faster for leaseholders who want to buy their freehold.

Making the property market fairer

At Andrew Granger, we believe that any measures to put money back in the pockets of homebuyers by making the market fairer and more transparent can only be a good thing. We use our local expertise to help people with all aspects of selling, buying and renting properties in Leicestershire on both a freehold and leasehold basis. To find out more please call us on the following numbers:

  • Leicester 0116 242 9922
  • Loughborough 01509 235 534
  • Market Harborough 01858 431 315