UK proposes ban on new build leaseholds

The UK has launched new proposals to ban new build houses being sold as leasehold as well as restricting ground rents to as low as zero.

Leasehold generally applies to flats with shared spaces, but developers – particularly in the north west – have been increasingly selling houses on these terms. Controversy, though, has arisen around some developers who have sold off the leasehold on to equity management or administration companies, who have then raised the ground rent, leaving buyers facing unexpected additional costs.

With 1.2 million leasehold houses currently recorded in England and the number of leasehold sales rapidly growing, the government is now taking action to make future leases fairer.

Communities Secretary, Sajid Javid says: “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiraling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.”

The proposals to cut out unfair abuses of leasehold were announced by the government today, with eight-week consultation also asking for professional opinions on setting ground rents to zero levels, changing the rules on Help to Buy equity loans so that the scheme can only be used to support new build houses on acceptable terms, and reducing ground rents on all residential leasehold properties so that they relate to real costs incurred, and are fair and transparent to the consumer.

The proposed prohibiting of future houses being sold as leasehold will apply to all houses, apart from a few exceptional circumstances where leasehold is still needed – such as houses that have shared services or built on land with specific restrictions.

Camilla Dell, Managing Partner at Black Brick comments: “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.”


Buying a leasehold? Watch out for the ground rent

29th November 2016

Buyers looking to purchase a leasehold property are being warned by agents to watch out for rising ground rents.

New-builds are an attractive product in a market where older properties can often have a prohibitively high purchase cost. One of the factors for this is that they are often available as leasehold, rather than freehold, properties. However, buyers are being warned to check the small print of their contract with a developer or with an agent, as rising ground rents can sometimes cause the properties to become very expensive.

This occurs when the freehold to a property has been sold onto equity management and administration companies.

“Part of the trap comes from the escalation in ground rent,” explains the National Association of Estate Agents. “Initially, it looks affordable, the developer gives the buyer a set ground rent with the contract stipulating this will double every 10-25 years. On the face of it this doesn’t seem too unreasonable, however, if the ground rent clause was £250 a year, doubling every 25 years for 999 years, the sum due for the final 25 years of the lease would reach £68,719,476,736,000.”

Around 6,000 new houses were sold as leasehold last year with Persimmon, Taylor Wimpey and Bellway, according to official government figures. The Guardian, which reported on the issue, notes that ground rents can grow at varying rates, some at a level of RPI, which is a far less expensive, but still costly, increase.

Justin Madders, MP for Ellesmere Port and Neston has raised awareness of the issue that may affect some buyers.

“There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses,” she tells the newspaper.