The end of leasehold? Secretary of State cracks down on “feudal practices”
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Sajid Javid has announced an eight week consultation on banning leasehold tenancies on new build properties
Secretary of State for the department of communities and local government, Sajid Javid, has today announced a crackdown on leasehold tenancies by banning the tenures on new build properties and reducing ground rents to levels that reflect real costs. The announcement comes as a result of the publication of the Housing White Paper in February which aimed at ‘Fixing our broken housing market.’
Speaking on BBC Radio’s Today programme this morning, Mr Javid said: “Enough is enough. These practices are unjust, unnecessary and need to stop.” Owners of leasehold tenancies do not own their homes outright since they pay ground rent to the freeholder that can as much as double every decade. The proposed ban would apply to all properties in England except for in “exceptional circumstances.”
In a column for The Times, Mr Javid expressed concern that leasehold rather than freehold tenancies were being sold unnecessarily. “We’re seeing more and more cases, particularly in the north of England, where developers are selling newly built houses on a leasehold basis for no good reason,” he said.
The problem is growing. According to the HomeOwners Alliance, the number of new builds sold as leasehold has doubled since 1996 to 43 per cent. The DCLG estimates that England offered 4 million residential leasehold dwellings in the private sector between 2014-5, 1.2 million of which were houses. More than 75 per cent of apartments in Hampstead are leasehold according to 2014 data from the Leasehold Knowledge Partnership.
He further announced plans to peg ground rents at “a token peppercorn level” that ground rents were “unjustifiable” and not reflective of the costs required to cover work to communal spaces. Mr Javid added: “Any such charges need to be fair and transparent. With ground rents on leaseholds, that isn’t always the case.
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“Too many owners face escalating charges that don’t relate to real costs incurred and will keep growing, long after the original mortgage is paid. It’s a great scandal of the modern housing market, and the plans we’re setting out this week will help bring it to an end.”
Leasehold is already banned in Scotland, and the proposals will apply to England only after a consultation period of eight weeks from today. Although the proposals will not help those currently locked into leasehold tenancies, the consultation will look at tackling unreasonable ground rent rises in the future.
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Camilla Dell, managing partner at London buying agency Black Brick has seen her fair share of unfair sales clauses for new builds where ground rents escalate rapidly.
Ms Dell commented: “We welcome this news as it adds protection and a layer of certainty to buyers of new builds going forwards. When purchasing any property, new build or not, with a long lease, the ground rent should always be peppercorn, but it does come down to the conveyancing process and for the buyers solicitor to carefully check the sales contract and ensure buyers interests are protected. This is why it’s so important to work with a good lawyer. At Black Brick we have a panel of carefully selected and vetted law firms we trust to look after our clients properly.”
Matthew Turner, managing director at Astute Property Search added: “The archaic leasehold / freehold system is nothing more than a money making scheme. Freeholders charge differing amounts for licences, with some even charging to let out a property.” Mr Turner believes that developers should mandatorily offer a 999 year lease or share of the freehold.
“A block with self-governance and where all the leaseholders own a share in the Freehold are much more desirable to purchasers as they care about the building they are living in and service charges are nearly always less in blocks where the leaseholders are also the freeholders,” he said.
The consultation will also include measures to set ground rents to zero levels, closure of loopholes which can subject leaseholders to possession orders if they can’t pay their ground rent, and bringing an end to leasehold tenures being sold through Help to Buy equity loans. It is also looking for views on freeholders challenging service charges for mixed tenure estates.
“Enough is enough. If housebuilders aren’t prepared to step off the ground rent gravy train, I’ll derail it for them,” announced Mr Javid.
The consultation closes on 19th September. You can have your say here.