Leasehold Ban for new-build Properties
by Daniela Litsova — Posted on 21 September, 2018
Pressure put on government to implement a ban on the sale of new build leasehold property
Changes to leasehold laws are set to be put in place, as the government announced its plan to ban the sale of almost all new-build houses on a leasehold basis. The decision came in an attempt to end the long-term financial abuse by property developers, and provide a relief for leaseholders who had been subject to rising ground rents. But as changes are still yet to be made, the Law Commission, MP’s and campaigners who have fallen victim to ‘the leasehold trap’ have called-on the government to follow through with this commitment in the coming months.
The Leasehold Scandal
Leaseholds provide individuals with the legal right to occupy and use a property for a fixed period, usually 99 to 999 years, but they do not own the land that it is built on; which is owned by the property developer. This means that leaseholders pay an annual ground rent, which typically rises in line with inflation. However, the scandal arose when it was reported that ground rent had increased at such a rate that many leaseholders ended up having to find many thousands of pounds a year, on top of service charges and their own mortgage payments.
A study conducted by the Conveyancing Association and Homeowners Alliance found that 98% of leaseholders had been mis-sold their homes by property developers, who had failed to give buyers enough information regarding ground rents and unexpected developer’s fees.
Leaseholds used to be associated almost entirely with flats, reflecting the fact that a block of apartments needs some form of communal upkeep. But there are now 1.4 million houses on leases, after large builders including Taylor Wimpey, Persimmon and Galliford Try started to sell their properties on that basis.
Proposals on Protecting Leaseholders
Under plans put forward by then Secretary of State for Communities Sajid Javid, leaseholds on new builds will be illegal while ground rents would be massively reduced. Legal loopholes will also be closed to protect leaseholders exposed to possession orders.
The trend for new homes being sold as leaseholds has grown in recent years, particularly in the North West of England. Mr. Javid hailed a “crackdown on unfair leasehold sales”: “What we’ve seen, in the last few years especially, is a huge increase in the number of houses, not flats but houses, that are being sold on leasehold terms for no good reason. And worse still, once they’ve been sold, those people that have bought those houses are then subject to ground rents that are ever escalating. These are just being used as another income stream by developers, not in the interest of consumers.”
Mr. Javid had suggested there should only be “very exceptional circumstances” where new-build houses could still be sold on a leasehold basis, such as on land held by the National Trust.
The Law Commission’s Reforms
The Law Commission is an independent body that reviews legal changes across England and Wales. It recently published a series of conveyancing reforms, thus mounting further pressure on the government to speed up the process of banning leaseholds to new-build houses. The proposed measures aim to achieve the following:
- Make it easier and cheaper to obtain full ownership of their property, by providing optional changes to the valuation formula;
- Give leaseholders the opportunity to make a claim at any time, rather than having to own the house for at least 2 year prior;
- Extend the rights of leaseholders to extend the lease of their property
The government has said that it intends to consider, over the summer, the different ways that the ban can be implemented. However, current leaseholders will still be expected to pay existing developers’ fees once the ban has been implemented.
After taking over from Mr. Javid as Communities Secretary in April 2018, James Peter Brokenshire MP welcomed the proposals, suggesting that it would help leaseholders to get a “fair deal”.
How Starck Uberoi can help
Starck Uberoi’s experienced conveyancing department can help you with your leasehold arrangements. For more information, please visit our Conveyancing page, or to book an appointment please call 020 8840 6640. We are based in Ealing; our West London Ealing office is located 10 minutes from Ealing Broadway station. For an appointment at our London Belgravia office a few minutes from Victoria Station call 020 7824 5118.