A ban on leaseholds for “almost all” future new build houses in England has been confirmed by the government following a recent consultation.
Leasehold agreements generally apply to flats with shared spaces and are supposed to make ownership of the land more straightforward. However, developers have been increasingly selling houses on these terms – adding further costs to over-stretched house buyers.
The Department for Communities and Local Government estimates that there were 4.2 million residential leasehold dwellings in England in the private sector in 2015 to 2016. Of these, 1.4 million were leasehold houses. This was a rise on the previous year, 2014 to 2015, when there were 1.2 million leasehold houses.
Because of this increase in leasehold houses, which the government says are being sold as leasehold “simply to create a reliable revenue stream for whoever owns the freehold”, the government has now confirmed it will legislate to ban leaseholds on all future new build houses in England.
The only exception is where leasehold is still needed – such as houses that have shared services or are built on land with specific restrictions. Existing leaseholders will also not be covered by the new rules.
According to the government, this legislation will take force as soon as possible, but it is subject to the usual parliamentary timescales.
The government will also:
- Introduce measures that ground rents on new long leases – for both houses and flats – are set to zero.
- Work with the Law Commission to support existing leaseholders and make the process of purchasing a freehold or extending a lease much easier, faster and cheaper.
- Provide leaseholders with clear support on the various routes to redress available to them.
- Launch a wider internal review of the support and advice to leaseholders to make sure it is fit for purpose in this new legislative and regulatory environment.
- Make sure freeholders have equivalent rights to leaseholders to challenge unfair service charges.
'Measures are incredibly weak'
Communities secretary, Sajid Javid, comments: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.“It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices. That’s why the measures this government is now putting in place will help create a system that actually works for consumers.”
But Louie Burns, managing director of Leasehold Solutions, doesn't think the government has gone far enough. He says: "Of course, we would welcome any reforms that actually make the leasehold system fairer for the millions of homeowners in England caught in the web of paying extortionate ground rents, onerous service charges and lease extensions.
"However, the measures announced today by the Government are incredibly weak. While the offer to abolish ground rents for new leases seems an attractive offer, it actually leaves existing leaseholders in a worse position because it will create a two-tier market, making new build properties with zero ground rents more attractive, while existing leaseholders will have less chance to sell their homes, as ground rents will still apply to their properties. Essentially developers have got off scot-free and, as usual, existing leaseholders will suffer the harshest consequences.
"The announcement also states that the sale of new build leasehold houses will be prohibited "except where necessary such as shared ownership''. We don't agree that the sale of shared ownership properties necessitates the continuation of leasehold and that other forms of ownership, such as Commonhold, would be preferable. Unfortunately the Government's announcement makes no mention of Commonhold as a viable alternative that is under consideration."
The rules on leaseholds elsewhere
This is a devolved issue, with the Department for Communities and Local Government only responsible for leasehold issues in England.
In Scotland, most properties are sold freehold. While there are some leasehold properties, there are tighter rules to protect owners from bad management. In 2011, the Property Factors (Scotland) Act came into force, with managing agents (also known as ‘factors’) having to register and comply with a code of conduct and belong to a government-run redress scheme.
In Wales, leaseholds are used in a similar way to in England.
The rules for Northern Ireland differ from those in England and Wales. For further information, visit Housingadviceni.org/leaseholders-freeholders-and-ground-rent.
See our Home Buying section for more information and guidance.