More and more developers are now selling houses on a leasehold basis, which is more common place for flats, rather than on a freehold, which is traditional for houses. This is a growing concern and could end up costing the new build home owners dearly and even devalue their properties in the future. This is because as the leasehold term shortens, the value of the property will go down accordingly.
There really isn’t a good reason for a house to be sold on a leasehold basis but to Developers it offers a further income stream when the freehold of the Development is sold onto third parties looking to make money on the back of leaseholders applications for consent for alterations and additions to their home, fees payable on the sale of the lease, lease extension applications and from home owners buying the freehold to their home. Whilst ground rents were traditionally modest rates have been increasing – no doubt in part to make the freehold of the Developments more attractive to these third party Purchasers.
The Government has now issued a consultation paper which seeks to tackle the unfair and unreasonable abuse regarding leasehold law in this area. The paper includes a proposal to remove help-to-buy equity loan support on new-build houses where these are sold as leasehold. Further it seeks to keep ground rent on new leases at ‘peppercorn’ level throughout the term of the lease. It would also enable freeholders on estates where properties are both freehold and leasehold with shared facilities to challenge unreasonable service charges. The paper also proposes that leaseholders would be excluded from possession orders over ground rent arrears.
Joe Egan, who is the Law Society president said: ‘Leasehold has long been an effective way to manage properties with shared or communal areas. However, the recent behaviour of some developers, setting excessive ground rents or selling free-standing houses as leasehold not freehold, have left some homebuyers in a difficult position.’
The Conveyancing Association’s director Beth Rudolf also hopes that the proposals will deal with the ‘single biggest loophole’ – the Commonhold and Leasehold Reform Act – Rudolf said: ‘This loophole means that one particular landlord openly continues to charge £300 for a deed of covenant when the first tier tribunal issued a judgment against them three years ago saying these should only cost £80.’
This is because currently the Commonhold and Leasehold Reform Act, excludes leasehold homeowners from being protected from unreasonable fees and delays when buying, selling or improving their property.
The consultation closes on the 19th September and we await its outcome with interest.