The Government's Housing White Paper published earlier this year highlighted the Government's aim to improve consumer choice in the leasehold sector and committed to consult on a range of measures to tackle what it called unfair and unreasonable abuses of leasehold. This week's consultation paper is a result of this consultation. It contains a number of proposals for reforming the sale of properties on long leases and proposing safeguards for existing leasehold owners.
Prohibiting the sale of new-build leasehold houses
The Government is concerned that new houses are simply being sold on a leasehold basis to create an income stream from the ground rent, or to generate additional income from the subsequent sale of the freehold title.
Developers and landowners argue that restricting their ability to sell freehold interests to third party investors will result in increased house prices, in order to compensate developers for selling the freehold interest to the purchaser, and will ultimately restrict consumer choice. However, the Government is not convinced. The consultation paper therefore asks respondents what restrictions ought to apply on the sale of houses on long leasehold terms. Its focal point is that houses should not be sold on long leaseholds unless there is a good reason to do so.
Ground rents - in leases of houses and flats
For both leasehold houses and flats, the tenant pays an annual ground rent. Formerly, these were typically nominal sums but in recent years these have escalated to significant sums in some cases. The consultation paper contains an example of a property costing £200,000 with a ground rent that begins at £295 a year and increases to £9,440 after 50 years. Often the ground rent in a modern lease will double on a periodic basis, possibly every ten years. The higher the ground rent, the more it would cost the leaseholder to extend their lease or to acquire the freehold title to the property.
The Government therefore wants to introduce measures to limit ground rents in new leases. One option is for ground rents to start, and remain at, a peppercorn (effectively no rent at all).
The proposed changes would only affect leases granted after the new rules come into effect. The consultation invites views on what steps could be taken to improve the position of existing owners of leases where the ground rent is liable for increase.
Responding to the Consultation
Some of the Government’s proposed changes will be welcomed by homeowners but may prove to be contentious with developers. This makes it all the more important for organisations and individuals affected by the proposals to submit their responses to the consultation. The consultation period is short, lasting only eight weeks; the last date for responding to the consultation is 19th September 2017.
A copy of the consultation paper can be found here: https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-market
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Leaseholds on new-build houses would be outlawed, while ground rents could be dramatically reduced, under government plans subject to public consultation. Ground rents can double every decade, crippling home owners and in some cases making a property impossible to sell.