No more leasehold houses?

The government has announced that it intends to tackle what it considers to be unfair practices in the residential leasehold market “as soon as Parliamentary time allows”.

Statistics show that there has been an increasing trend of developers selling new-build houses as leasehold, as opposed to the more traditional freehold ownership. One motive for this in many cases is to generate an additional income stream from the ground rents payable when a house is leasehold, with that income stream often sold on to investors.

Another recent trend is a significant increase in the cost of ground rents for long residential leases, which traditionally have been nominal. Such increases can create an unforeseen financial burden for the owner and make the property harder to sell or to mortgage, particularly as mortgage lenders are increasingly wary of such onerous terms.

Following a consultation that elicited over 6,000 responses, the government has announced a series of measures to tackle these issues in England. They include:

• With some limited exceptions, prohibiting new long leases of houses.
• Requiring ground rents in all new long residential leases to be set at a “peppercorn” – or zero financial value.
• Making it easier for leaseholders to buy their freehold or extend their lease.
• A possible right of first refusal for house lessees.

Houses built on land that is subject to an existing lease cannot be sold as freehold. The government’s answer to this is to propose a ban on the sale of leasehold houses on land that was not subject to an existing lease at the date of the announcement: 21 December 2017.

Once enacted these measures will clearly have a major impact on new – and some aspects of existing - residential developments. We will report further when flesh has been put on the bones of the proposals and a timetable for implementation is announced.