23 January 2018

Government announces plans to deal with leasehold houses and escalating ground rents

The Government has responded to the consultation on unfair leasehold practices by publishing a summary and analysis of the responses on 21 December 2017.  The Communities Secretary has announced a number of new measures to cut down on what he terms are "unfair and abusive practices within the leasehold system".

It appears clear that the Government is going to push through reforms to deal with practices currently adopted by developers, which are described as "feudal".  This will include a ban on leasehold for almost all new build houses and peppercorn ground rents, which will be welcome news for buyers of new properties. It is also clear that this is just the first step in a number of wider reforms relating to leasehold ownership that will extend to onerous ground rents, residential management and enfranchisement with a view to ensuring that owners can tackle escalating ground rents, unfair service charges and acquire their freehold or an extended their leases more easily.  

A Summary of the Governments immediate proposals are as follows:

Limiting the sale of new leasehold houses

The introduction of legislation to ban new residential long leases on existing or newly built houses. Where land is currently subject to a lease, developers will continue to be able to sell leasehold houses on that land but the Government intends to make it easier for existing leaseholders to extend their leases or acquire their freehold on terms that are more favourable.

Exemptions will be considered where leasehold houses can be justified but there will be a more in depth response to the Law Commission's report "Making Land Work" with a view to making it easier to create long-term arrangements that are legally binding for the maintenance of shared structures.

The removal of Help to Buy loan support for leasehold houses

All developers will be strongly discouraged from using the Help to Buy equity loans for the purchase of leasehold houses, in advance of new legislation.

All new residential leases granted for a term of over 21 years are to have their ground rents set at zero

Ground rents on newly established leases must be set at a peppercorn. The Government also wants support to be provided to all those with onerous ground rents, although it has not as yet set out how this must be provided.

Exempting Leaseholders potentially subject to mandatory "Ground 8" possession orders

Action will be taken to address the issue that, where ground rents exceed £250 per year (£1000 per year in London), a leaseholder is classed as an assured tenant and therefore could be subject to a mandatory possession order if they default on the payment of ground rent. Again, no details have yet been provided, but the Government intends to ensure that leaseholders are not subject to unfair possession orders.

Service Charges for maintaining communal areas and facilities on freehold and mixed tenure estates

Legislation will be introduced to protect freeholders who pay charges for maintenance of communal areas/facilities so that they too can challenge the reasonableness of service charges.  There will also be additional protections put in place in relation to rentcharges.

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