Buyers of new-builds could save hundreds thanks to a crackdown on unfair leases - but no help for existing leaseholders

15 October 2018
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Prospective new-build homebuyers will be relieved to hear that the government intends to crack down on unfair leasehold practices.

James Brokenshire, the communities secretary, has announced proposals to cap new leases to just £10.

The government also says the majority of new-build properties will be built freehold instead of with leases, an increasingly-criticised practice, seen as unfair on buyers of new-build properties in particular.

When you buy a home you buy either the freehold or the leasehold. The freehold means you own the property and the land on which it sits. Leasehold means you own the property and effectively rent the underlying land, generally for decades or even centuries. Until recently houses were generally sold freehold, while flats are more commonly sold leasehold.

But over recent years developers have started to sell new-build housing as leasehold, and profiting by selling the leasehold to someone else. Homeowners often don't realise the implications of buying leasehold instead of freehold, which can include paying escalating ground rent or having to ask the freeholder permission to make modifications to their home. 

Ground rent costs the average leaseholder more than £300, with some paying as much as £700 per year. Not only is this costly for owners, but it makes selling the property on more difficult too.

Mr Brokenshire, secretary of state for communities, comments: “Unfair ground rents can turn a homeowner’s dream into a nightmare by hitting them in the back pocket, and making their property harder to sell.

“That’s why I’m taking concrete action to protect homeowners and end those unscrupulous leasehold practices that can cost tenants hundreds of pounds.”

Only good news for some

However, the new rules are as of yet just proposals, set for consultation. The government will seek views on appropriate exemptions.

Commenting on the announcement, Mark Hayward, chief executive of NAEA Propertymark, the main association for estate agents says: “Thousands of homeowners across the country are facing escalating ground rents, charges for making alterations to their properties and unable to sell their home.

“Therefore, it’s only right the government looks to crackdown on unfair leasehold practices to stop even more people feeling trapped in homes they cannot afford to continue living in.

“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property.”

However, Mr Hayward caveats the good news with a reminder that this proposal only benefits new homeowners: “This announcement is only good news for those looking to buy a leasehold property in the future. With 4.2 million leasehold properties in England, many will remain stuck in their lease with no straight forward way out and the industry needs to help them.”

Comments

In reply to by anonymous_stub (not verified)

Our Retirement Village has built and sold all the properties in Phases 1 and 2 of the development. All owners are tenants , I.e. they hold leases. The owning company told us this was all of the development., that there would be no more. But last year more land adjacent to ours became available. They applied for and were eventually given Planning approval. Will be “ new Builds” be freehold ?

In reply to by anonymous_stub (not verified)

Leasehold houses. The government should force the developers who sold houses leasehold (without the freehold) ( or their successors) to hand over the freeholds to the house owners and charge them a fixed price of less than £1000 to include the registration at the land registry. The developers were committing a scam and I believe fraud and should be held accountable and the solicitors unprofessional.It is time the government took control of a broken and corrupt market.

In reply to by anonymous_stub (not verified)

Somebody needs to do something to help existing leaseholders urgently. Something also needs to be done about the scam of shared ownership which has a lease attached to it. People are paying for a percentage of a property usually several thousands of pounds, then having charges raised to levels that are unaffordable. In this situation, a clause in these leases, which is never pointed out by solicitors when buying, states that if leaseholders default on paying fees even if they have no mortgage on the share of the property they agreed to buy, then action is taken by the freeholder with the leaseholder forfeiting their share of the property. This can take place after arrears amount to 3 months fees which are never anywhere near the amount paid out by the leaseholder. This should only be applied on a tenancy agreement where no percentage of a property is bought. It should never have been applied to shared ownership properties. The leaseholder loses everything in the way of equity of thousands of pounds for arrears which wouldn't amount to anywhere near the equity amount. This clause needs to be totally removed from any leases other than those renting only on a strict tenancy agreement basis. Leases are contracts. There is a law for unfair terms in consumer contracts, UTCCR 1999, which, as buying anything including property, is a consumer purchase so this law has to apply. All leaseholders keep being told is property law is different. No it isn't, A consumer buys and inanimate item and is issued with terms and conditions of contract otherwise known as a lease. This law applies, it's only solicitors and people who have a vested interest in ripping people off who prevent this act being applied to leases. It needs sorting out. Why should anybody lose thousands of pounds for a debt of considerably less just because some greedy freeholder thinks its a good idea to penalise struggling leaseholders. We can't sell these places, can't afford to buy the extra percentage to give full ownership and because of these grossly unfair leases we are in danger of losing everything. Make the freeholders buy the percentage back, even at a lower than valuation fee and rent the property out. This would solve a considerable number of issues plus in many cases it would release housing stock to be rented out.

In reply to by anonymous_stub (not verified)

Why do you say that leaseholders own the property?This is incorrect, the leaseholder owns nothing but the right to live in the property for the period of the lease. They are a tenant in name and legal title.Please can you correct this mistake?

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