Government consultation begins on leasehold reform

The government has launched a consultation seeking views on its plans for reforming the leasehold system in England. The reforms are aimed at making the system fairer and more transparent for leaseholders and cover the types of properties that can be sold as leasehold, as well as issues such as ground rents and maintenance fees.

The government announced a ban on the sale of new-build houses as leaseholds in England in December 2017 following an initial public consultation on the issue. The new consultation covers four key issues:

  • How the ban on selling new-build houses as leaseholds should be implemented (including suggestions for any exceptions that should be allowed)
  • How to introduce the restriction of ground rents to a nominal fee of £10 per year
  • How to ensure charges freeholders pay towards maintenance of communal areas are fair and transparent
  • How to improve the way leasehold properties are sold, including when information about the lease needs to be provided to prospective buyers and what fees should be involved

The consultation is set to last for 6 weeks from 15 October 2018, meaning all responses must be submitted by midnight on 26 November 2018.

What are the issues with the existing leasehold system?

While properties have been sold on a leasehold basis for hundreds of years, the system has come under increasing criticism in recent years mainly due to the way modern property developers have sold new-build homes as leaseholds.

Some of the most common problems leaseholders have experienced include:

  • Ground rents that double every 10 years
  • Excessive service charges
  • Difficulties reselling properties because mortgage providers are reluctant to lend on the properties due to the escalating ground rents and other high costs
  • Difficulties buying the freehold of the property (especially as in many cases the developers sell the freeholds on to offshore companies)

Research suggests these problems have been compounded by the fact that over half of leaseholders did not understand how the system worked before buying their property.

Is leasehold property always bad for buyers?

Leaseholds can be ideal for certain kinds of properties, in particular, they have long been common for flats, with there being around 2.9 million of these in England. The system can be very useful for these types of properties, which usually share communal spaces such as stairs and hallways.

This is because it allows the freeholder to take charge of maintaining these areas, rather than individual occupiers having to co-ordinate with each other to manage those shared spaces. The freeholder is also responsible for maintaining the overall fabric of the building e.g. the roof and external walls.

A leasehold can, therefore, be a good option for anyone looking to buy a flat as it can make their life easier, allowing them to avoid the admin involved in looking after communal spaces and the overall fabric of the building. However, this will, of course, depend on whether the ground rent and service charges are set at a fair rate.

Whether you are a leaseholder or freeholder of leasehold property, Preston Redman’s property solicitors have the expertise you need to protect your property interests. Contact Adrian Falck, Partner on 01202 292424 or by email acf@prestonredman.co.uk.