Leaseholds – what does the recent government announcement mean?

Leaseholds – what does the recent government announcement mean?

You may well have heard that the government recently announced its intention to abolish the feudal practice of leaseholds in relation to all new property that is built in England.

What is leasehold property?

A leasehold property is one where you only have the right to occupy it for a set period of time. The freeholder (who owns the land on which your property sits) can take ownership of the property back upon expiry of the leasehold. The lease will also tell you what you can and can’t do in relation to the property as well as the ground rent that you have to pay to the freeholder each year to maintain your lease.

It is the government’s intention to end the system of leasehold property for all new houses and flats being built, although certain exemptions will still apply. The announcement sets out the intention to ensure that all new long leases will have zero ground rents and will also make it easier and cheaper for leaseholders to buy out their freehold.

The announcement was made following a recent consultation and investigation into the whole leasehold system driven by the practice of some landlords increasing ground rents every 10 or 25 years on properties, a practice which led some mortgage lenders to refuse to provide mortgages for leasehold properties with such provisions in their leases. It is believed that the consultation received over 6,000 submissions, with the vast majority being critical of the ancient system.

It is estimated that there are around 4.2 million properties in England that have leases in place, of which an estimated 1.4 million are houses, although the announcement will not retrospectively affect these. There will also be exceptions for certain new build properties, such as those that have shared services or that are built on land with certain restrictions, although at this stage it is unclear exactly how these exemptions will work.

The announcement was made by Communities Secretary, Sajid Javid, who said “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.

“It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices. That’s why the measures this government is now putting in place will help create a system that actually works for consumers.”

A spokesman at the Housebuilders Federation said: “While proposals should have little impact on mainstream house builders, we need to ensure that for specialist providers – such as the retirement housing sector – they are sensible and don’t threaten viability, and as a result, supply.”

The main measures to be introduced include:

  • legislating to prevent the sale of new build leasehold houses, except where necessary, such as shared ownership;
  • making certain that ground rents on new long leases – for both houses and flats – are set at zero;
  • working with the Law Commission to support existing leaseholders and make the process of purchasing a freehold, or extending a lease, much easier, faster and cheaper;
  • providing leaseholders with clear support on the various routes to redress available to them;
  • a wider internal review of the support and advice to leaseholders, to make sure it is fit for purpose in this new legislative and regulatory environment;
  • making sure freeholders have equivalent rights to leaseholders to challenge unfair service charges.

These latest measures follow the government setting out plans in the housing white paper to fix the broken housing market, including making sure councils release more land for housing, building the right homes in the right places and improving affordability and protections for renters and home purchasers.