The Government published its formal response to the consultation, Tackling Unfair Practice in the Leasehold Market, on 21 December 2017.
It is estimated that one fifth of residential properties are now leasehold owned. There has been a shift away from leases being primarily used for the ownership of flats with 15% of new build houses sold in 2016 being leasehold rather than freehold. There has been much in the press in 2017 in respect of the unfair practices relating to the management of leasehold houses with the Secretary of States for Communities and Local Government making reference to the practices being “practically feudal”. The response to the consultation states that the Government will bring forward legislation to enact measures to tackle the unfair practices as soon as Parliamentary time allows but what are these measures?
1. Bringing forward legislation to prohibit new residential long leases from being granted on houses, whether new build or on existing freehold houses. Existing leaseholders will still be able to extend their lease, or purchase the freehold, and the Government proposes to consult on proposals to support leasehold house owners to do this on more favourable terms. There will be an exception where the land being developed is leasehold land itself and the Government will consider further if there are particular cases where leasehold houses can be justified.
2. Discouraging developers from using Help to Buy equity loans for the purchase of leasehold houses in advance of new legislation.
3. Introducing legislation so that, in the future, ground rents on newly established leases of houses and flats are set at a peppercorn (zero financial value). The Government will also consider how it can support existing leaseholders. Some developers have introduced schemes to compensate individuals but the Government wants to see this support extended to all those with onerous ground rents, including second hand buyers. How far this will go to redress the onerous, escalating ground rents and prevent a two tier market whereby new builds with zero grounds rents will be more attractive than existing leasehold houses containing the onerous escalating ground rents remains to be seen.
4. Legislating to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges as well as ensuring that, where a freeholder pays a rent charge, the rent charge owner is not able to take possession or grant a lease on the property where the rent charge remains unpaid for a short period of time.
The Government also identified future areas for reform including enfranchisement (the ability to buy out the freehold or extend a lease) and commonhold.
Click here to view the Government response in full:
We will have to wait and see the proposed legislation “when Parliamentary time allows”.
Elizabeth Newson is a Senior Associate in our real estate team. If you would like to discuss the leasehold market or any other real estate matter please get in touch. 01392 210700 or email email@example.com