Tackling unfair and reasonable abuses of Leasehold – The Government’s White Paper

In February of this year the Government launched a White Paper entitled “Fixing our broken Housing Market” in an attempt to consult on a range of measures to tackle unfair and reasonable abuses of Leasehold. The consultation ends at midnight on 19th September 2017 and with barely a month to go MIH thought it would be a good time to examine what the proposals actually means for property owners in England.

At present property can be purchased in two ways, Freehold and Leasehold. Purchasing a Freehold property as it suggests means that you purchase the property and the land it stands on, Leasehold again as the names suggest means that although you own the property, you rent the ground on which it stands effectively paying a ground rent. There is another form of ownership, Commonhold which was introduced in 2002 but has not really been taken up and is therefore not really relevant to the consultation.

In summary the paper focuses on the sale of Leasehold property and the conditions of the Lease. The Government are looking to prohibit the sale of new build leasehold houses, limiting ground rents and protecting leaseholders from possession orders. Often, buyers are not made aware of the future costs of buying a Leasehold property with ground rents often increasing significantly during the tenure of the Lease.

In some cases, where houses are on National Trust Land, there is no alternative but to sell these off on a Leasehold basis so the system can’t be abolished altogether. Instead the Government are hoping to limit the future profits a Landlord can make on ground rent collection and selling the Freehold interest after they have sold the property itself.

There have recently been several cases in the media where people have purchased a property without being aware of the stepped increases contained in the Lease. In one case the ground rent for a first time buyer had increased to £8000.00 a year and would continue to increase at a rate that it would reach £8,000.000 in 95 years’ time. The new legislation would look to limit increases on all new residential leases over 21 years trying to keep the ground rent to a peppercorn except in the case of housing association tenants who exercise the Right to Buy.

The consultation paper also looks at the effect of the increased ground rents which will effectively put Lessees on the same footing as tenants who are renting flats via an Assured Shorthold Tenancy or AST. Leaseholders will become subject to the same eviction processes that Landlords are able to use to end tenancies.

Finally, it is proposed that owners of Freehold Houses or mixed tenure estates who pay towards communal areas including gardens, roads, and electric gates will now have the opportunity to challenge the costs of these at the First Tier Tribunal, a right that they do not currently have.

It is the opinion of MIH and its Director that every attempt should be made to provide new purchasers with full information about a property and the basis on which they are buying. It is also our opinion that increases in Ground Rent should not be allowed to become burdensome or act effectively as another mortgage for someone who has purchased their property.

However, the concern remains that if house builders lose this income stream they could be deterred from building homes at all and in a market where there is a lack of new homes, feel that serious consideration needs to be given to finding a win-win situation that works for all parties, and continue to encourage the creation of new homes.

We would also be in favour of the exemption of “Ground 8” possession orders as we don’t believe that non-payment of ground rent should be considered the same as renting a flat. Finally, we agree that Freehold house owners should have the same opportunity to challenge costs in the interests of fairness and do not feel that any sector of the housing market should be penalised or treated differently.

If you would like to listen to the webinar recording and download the slides please visit the Lease Advisory Service site