Calls for UK Government to urgently sort out ‘abusive’ residential leaseholds on new builds
The need for residential property leasehold change is laid bare by new figures published by the UK Government showing there are 4.2 million properties that fall into this category.
That is 200,000 more than had been estimated and has intensified calls for reform of the sale of new build homes with leases which have resulted in home owners being forced to pay escalating ground rents and fees and even being unable to sell their home.
Ministers have pledged to sort out the leasehold scandal after it was revealed that the owners of new builds have seen ground rents rise by thousands of pounds after the developers, the original leaseholders, sold them on to investment companies.
A consultation on reform has just completed with the Department of Communities and Local Government (DCLG) saying that it will take what has been said on board and tackle the issues.
‘It is un acceptable that home buyers are being exploited with unjustifiable charges and owners ground rent terms,’ said a DCLG spokesman.
Campaigners against leaseholds hope that selling new homes with leases will be banned but they have criticised the need for such a long process, including the consultation and are calling for more urgent action and also pointing out that it is not just a matter of outlawing these kind of leases but also dealing with home owners trapped by the system.
‘We welcome the Government’s recognition of the injustices in the current system and proposals to ban the sale of new build leasehold houses. But we also need to deal urgently with those already caught in this scandal by curbing extortionate ground rents,’ said a spokesman for the HomeOwners Alliance.
‘We believe the Government should go much further and set out a plan to abolish the leasehold system over time. There are not redeeming qualities to the leasehold system which is so complex and confusing to the public that partial reforms will mean it will remain a vehicle for unscrupulous landlords and investment companies to unfairly make money from home owners,’ he added.
The Conveyancing Association has outlined what steps the Government should take to limit the sale of new build houses and to tackle some of the problems around the leasehold process in general in its submission to the consultation.
It suggests that replacing leasehold with a working commonhold proposition could solve many of the problems such as escalating ground rents, the sale of the freehold in order to make a substantial profit, and the rise in fees and premiums to leaseholders in order to allow them to, for example, extend leases and make alterations to the property.
If commonhold is not deemed to be the solution then the CA argues that leasehold should only be applicable where there are genuine shared amenities and the term of the lease should be 999 years with a peppercorn ground rent. It also argues that all administration fees should be based on a reasonable fee tariff plus leaseholders must have access to a redress scheme if the Lease Administrator attempts to charge unreasonable fees or does not respond within five working days of a request.
The CA has been lobbying for action to review the work of some Lease Administrators who manage leases on behalf of the freehold, with many leaseholders being forced to pay extortionate amounts of money in the form of fees in order to sell their properties, plus being subjected to severe delays which mean that the sale of leasehold properties often takes much longer than that of a freehold, on average 20 days longer.
‘The CA wants to see an end to these delays and the rampant profiteering that has been taking place in this part of the market. The CA argues that, if leasehold is to be retained, then sales of leasehold houses by developers should be actively discouraged by ensuring any profits generated through ground rent or administrative charges are to be placed in a reserve fund which would be put towards the maintenance of the shared amenities which have necessitated the leasehold,’ the submission says.
‘It also wants leaseholders to have a collective right of first refusal on the sale of the freehold, enabling the leasehold owners to come together to buy the freehold and take over maintenance, with the premium calculated on a statutory formula based on the ground rent, which would be minimal. Finally, it wants to ensure that, on all marketing literature, it is clearly stated that the property is leasehold and what this means on purchase and in the future,’ it adds.
Beth Rudolf, director of delivery at the CA, said that the association wanted to spell out the red lines that need to be drawn to ensure that no leaseholder is left in the situation that many people find themselves in, and which have hit the headlines in recent months.
‘That means defining when leasehold can be used, minimum lease terms, peppercorn ground rents, reasonable fees, and access to a redress scheme, amongst others. These proposals are all designed to ensure we have a much fairer and transparent process in place, and that the money charged for various services is actually what it costs to deliver, not an arbitrary figure plucked out of the air in order to deliver as much profit as possible,’ she explained.
‘The current system has clearly been abused which means that it is leasehold in its entirety that needs amending. We will continue to work with the DCLG to deliver what is required and to produce a system that has the needs of the leaseholder at its heart,’ she added.