Leaseholds on residential property where home owners can end up paying rising fees for ground rent or to put up a conservatory are to be banned in England and ground rents set as low as zero.
In some cases owners found that the developer had sold the leasehold to private investment companies who then increased the amounts annually, in some cases doubling every year.
Now Communities Secretary Sajid Javid has confirmed that new legislation later this year will outlaw the practice and aim to help those, including first time buyers who often struggle to save for a deposit, who find themselves paying unrealistic amounts.
Some home owners found that they would have to pay large amounts to do things that most owner would regards as ordinary such as putting up a conservatory, changing flooring materials and even painting their garden fence a different colour.
The plan is to put a cap on leasehold fees and a crackdown on leasehold properties that qualify for the Government’s flagship Help to Buy schemes. While some developers have voluntarily stopped the practice of selling leaseholds to private companies, others have not and Javid said he was now making sure that all would be equal.
Communities Secretary Sajid Javid said that under the plans there will be a ban new build houses being sold as leasehold as well as restricting ground rents to as low as zero as he believes that some buyers have faced ‘unreasonable and long term financial abuse’.
Leasehold generally applies to flats with shared spaces, but developers, particularly in the North West of England, have been increasingly selling houses on these terms and then selling the leaseholds on. When owners try to buy the leasehold they are quoted huge, unaffordable sums to do so.
‘It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop,’ said Javid.
‘Our proposed changes will help make sure leasehold works in the best interests of home buyers now and in the future,’ he explained, and announced an eight week consultation process with new legislation expected by the beginning of 2018.
Under the proposals some ground rents will be set to zero to stamp out the practice of them being increased significantly, in some cases doubling every 10 years. There will also be changes to the rules on the Government’s flagship Help to Buy equity loans scheme so that it can only be used to support new build houses on acceptable terms.
The terms of some leases are becoming increasingly onerous to those purchasing leasehold flat or house, who often find they need to pay thousands of pounds to their freeholder to make simple changes to their homes.
Recent cases include a home owner being charged £1,500 by the company to make a small alteration to their home, a family house that is now unsaleable because the ground rent is expected to hit £10,000 a year by 2060 and a home owner who was told buying the lease would cost £2,000 but the bill came to £40,000.
Ground rents are charged on all residential leasehold properties but evidence shows that they are becoming increasingly expensive. Javid said that they could be reduced so that they relate to real costs incurred, and are fair and transparent to the consumer.
The move has been widely welcomed. Some builders had already voluntarily ceased to operate leasehold sales but others have not. Beth Rudolf, director of delivery at the Conveyancing Association, said the biggest area of change needs to come in the Commonhold and Leasehold Reform Act, which currently excludes leasehold home owners from having any protection from unreasonable fees and unreasonable delays when buying,
selling or simply improving their property.
‘This loophole means that one particular landlord openly continues to charge £300 for a Deed of Covenant when the First Tier Tribunal issued a judgement against them three years ago
saying these should only cost £80,’ she pointed out.
‘We hope the Government will consider the leasehold reform proposals submitted by the Legal Sector Group last month and, in the meantime, at the Conveyancing Association we will continue our work to find a better method of tenure for properties with shared amenities,’ she said.
Sebastian O’Kelly, spokesman for the Leasehold Knowledge Partnership, also welcomed the ban. ‘Leasehold houses are an absolute racket, a means by which developers have managed to turn ordinary people’s homes into long term investment vehicles for shadowy investors, often based offshore. In short, house builders have been systematically cheating their own customers,’ he said.
