Crackdown on developers ‘exploiting’ leaseholds on new houses in England

25 July 2017
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The government has set out plans to ban developers from selling new-build houses as leasehold in future developments, as well as limiting the amount existing homeowners have to pay in ground rent.

Government data reveals that out of around 4 million leasehold properties around 1.2 million are leasehold houses – with the practice widespread in the North West.

But a new eight-week consultation will look at banning the sale of new-build leaseholds apart from in a few “exceptional circumstances” – for example, houses that have shared services or are built on land with specific restrictions.

The Department of Communities and Local Government cites examples of a homeowner being charged £1,500 by the freeholder to make a small alteration to their home and a homeowner who was told buying the lease would cost £2,000, but the bill came to £40,000.

Rising ground rents to be tackled

The consultation will also look at setting ground rents on new leases to “zero levels” and examine how to tackle existing onerous ground rents. In recent years these have increased significantly, in some cases doubling every 10 years. Under government plans, ground rents will relate to real costs incurred.

Earlier this year, Andrew Henderson talked to Moneywise about problems he faced with his home in a Taylor Wimpey development near Clitheroe in Lancashire. His ground rent of £320 a year would double every 10 years and he had to pay a fee of £10,000 to the freeholder if he wanted to carry out major improvements.

In April 2017, developer Taylor Wimpey apologised for the doubling ground rent clause in some of its leases and it’s negotiating with companies that have bought its freeholds to review this clause, setting aside £130 million to pay for this.

Communities secretary Sajid Javid says that developers are ‘exploiting” home buyers with unfair agreements and spiralling ground rents.

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

‘Acceptable terms’ for Help to Buy on new-builds

The government will also look at changing the rules on Help to Buy equity loans so that the scheme can only be used to support new-build houses “on acceptable terms” and will consider ending the practice of leaseholders being vulnerable to possession orders because of ground rent arrears.

Paula Higgins, chief executive of consumer group Homeowners Alliance, says: “This is a welcome move, but it's not before time. There is no reason why new-build houses should ever have been sold as leaseholds, and this unsavoury practice has turned the dream of homeownership into a nightmare for many. I hope Mr Javid follows through on his plans to help those buyers who have already bought these properties too by capping ground rent charges.

"Unfortunately, there are a number of other abuses within the leasehold sector that need addressing – including owners of freehold houses on new-build estates being made to pay unfair and often disproportionate fees for the maintenance of public shared spaces.”

 

Comments

In reply to by anonymous_stub (not verified)

I suspect that the real problem lies with ignorant and/or lazy solicitors. These are the ones who, when acting for a purchaser, failed to draw their clients’ attention to the ground rent and other provisions and, in particular, fail to explain, to their lay clients, what they really mean and their likely impacts.Whilst I do not agree with the sale of leasehold houses particularly since Harold Wilson’s Leasehold Reform Act 1967, it is arguable that the original sale prices reflected the developers’ continuing benefits from retained ground rents, etc. So, I can see no reason why landlords should pick up the pieces, i.e. the cost, rather than solicitors. After all, solicitors’ primary functions are to protect and advise their clients, not just to shuffle papers. The “scandal” might, thus, lie with negligent solicitors, not with house builders.

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