Government Confirms Leaseholds Axed for All New Homes

Year Published: 2019

There are an estimated 2.9 million leasehold flats and 1.4 million leasehold houses in England which amount to almost a fifth of the housing stock in England. The confirmed leasehold reforms by Government for all new homes will affect a large number of people, including both leaseholders and landlords.

Leaseholders are granted the right to live in their property for an agreed period, usually between 99 and 125 years. Under the lease, the freeholder/landlord then charges the leaseholder ground rent to enjoy that right. It has long been recognised that there is severe unfairness in the leasehold market where in recent years ground rent has been subject to unjustifiable rent review clauses which sees it doubling every 10 or 15 years. This escalates to extortionate rates that are unaffordable for homeowners to keep or sell their property.

As part of plans to tackle unfair leasehold practices in residential property, the Government has confirmed that the proposed reforms to axe all new leaseholds and for all new build homes to be sold as freehold will go ahead as soon as time allows.

There is to be immediate action to ban Help to Buy developers selling leasehold houses. Homes England will also renegotiate all Help to Buy contracts to explicitly rule out the selling of new leasehold houses, unless in exceptional circumstances.

The announcements of these plans have already seen a fundamental impact on the housing market, with the sale of leasehold houses falling from 11% to just 2% this year alone.

What does this mean for future homeowners?

  • Ground rents on new leases for both houses and flats will be slashed to £0.
  • Freeholders and managing agents will be required to provide leaseholders with vital information they need to sell their home within 15 working days, and will not be able to charge a fee of more than £200.
  • Where buyers are incorrectly sold a leasehold home, they will be able to get the freehold title outright at no extra cost.

Problems for existing homeowners

The Law Commission has outlined measures to help existing leasehold homeowners buy the freehold of their houses, including removing the requirement to have owned the house for a minimum of two years and changing the valuation formula. However, questions still remain about the position of existing homeowners who are trapped with a leasehold property that has onerous ground rent arrangements, which could see them paying an annual ground rent of more than £9,000 in just 50 years’ time. Nonetheless, we have seen some developers willingly entering into a deed of variation of the lease to amend the rent review clauses.

Tips for homeowners

  • If you already own a leasehold property, contact your landlord to enquire about either purchasing the freehold title for your property or varying the existing rent review clauses.
  • If you are in the process of purchasing a leasehold property, ask your conveyancer to make enquiries about buying the freehold title or varying the rent review clauses if they are onerous.

For more information on leasehold reforms or property-related matters, please contact our Residential Property team on 0161 475 7676.

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