Builders will be banned from selling newbuild homes as leasehold, according to the Government. The Communities Secretary Sajid Javid made the announcement this week as he launched a consultation on the use of leasehold and ground rents in brand-new homes.
The Department for Communities and Local Government (DCLG) is to host an eight-week consultation, advocating prohibiting the sale of new leasehold homes; changes to Help to Buy where it applies to leasehold properties; and limiting the starting value and increase of ground rents on all new residential leases over 21 years.
Mr Javid said extreme examples of leasehold where ground rent is raised by thousands of pounds over a short period of time was another example of “a broken housing market”.
He said: “Enough is enough. These practices are unjust, unnecessary and need to stop. It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents.”
Current situation is ‘feudal’
The proposal to outlaw the sale of newbuild homes as leasehold will only apply in England. Most leasehold properties in England are flats, but more newly-built houses are now being sold as leasehold – in 1996, 22 percent of newbuilds were leasehold; that figure rose to 43 percent by 2015.
A freehold property means the person owns both the building and the land on which it stands. In leasehold, the landowner retains ownership of the land and leases the building or house to the buyer. Leases usually run for long periods of time, but the leaseholder is obliged to pay ground rent annually to the leaseholder. And it is here where unscrupulous leaseholders have exploited the lack of clarity in the law and raised ground rents by extortionate amounts.
Mr Javid intends to prevent that scenario applying to those who buy newbuilds, describing the current situation as “feudal”. However, there are no proposals to deal with those who currently hold leases with Mr Javid acknowledging the situation is complicated by the fact leasehold is covered by a number of Acts of Parliament.
Around a fifth of all private housing in England is owned by leaseholders, with around 30 percent or 1.2 million of those houses.
In its consultation document, the DCLG stated: “Many prospective leaseholders are no fully aware that this form of tenure involves a landlord-tenant relationship, or of the significant financial and other interests they sign up…”
Clarity on legal title essential
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