In July 2017 the Department for Communities and Local Government issued a consultation paper seeking views from the real estate industry on various proposals to deal with public concerns regarding the sale of leasehold houses. Yesterday it responded, announcing that it will legislate to ban the grant of new residential long leases on houses.
Banning the grant of new build leasehold houses?
The consultation asked several questions about the way that leasehold houses work at present. The responses detailed the various pros and cons of this system of home ownership including consumers' distress at realising that they own a depreciating asset not a freehold, and/or that the freehold had been sold to an investor. Many are also subject to escalating ground rents. However, to set against this, there are benefits to the leasehold structure in terms of attracting investment into the housing sector and ensuring compliance with covenants.
The Government has decided to bring forward legislation as soon as possible to prohibit new residential long leases from being granted on houses, whether new-build or existing houses. They will consider implementing aspects of the Law Commission's 2011 report ‘Making Land Work’ on new ways to create long-term arrangements for the maintenance of shared structures, facilities and open spaces on freehold developments.
The report stresses that the Government is keen to ensure that the new legislation does not adversely impact on the supply of housing, or the long-term sustainability of shared facilities, structures and open spaces. The Government acknowledges that it will therefore have to deal carefully with various sorts of development such as shared ownership schemes, land that was already subject to a lease as at yesterday's date, and specialised developments such as retirement villages where leasehold is important to the structure because of the high level of shared services, the age restrictions on ownership and, in some cases, mutual covenants regarding the provision of extra care to residents. The Government will also consider individual case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness.
Ground rents on new residential long leases
The Government will introduce legislation so that ground rents in new long residential leases ground rents are capped at a peppercorn, with provisions to protect shared ownership schemes.
Current long residential leases
The Government will work to assist current residential leaseholders by:
- continuing to consider how to support existing leaseholders whose leases contain onerous ground rents, and work with the redress schemes and Trading Standards to provide leaseholders with information on the various routes to redress available to them, including where their conveyancer has acted negligently;
- with the Law Commission, considering whether unfair terms should apply when a current long residential lease is sold on to a new leaseholder;
- working with the Law Commission on making it easier for leaseholders to exercise their right to buy their freehold, or extend their lease, and consulting on introducing a prescribed formula for setting a price. They will consider introducing a minimum lease term for new long leases on flats to protect tenants from higher costs when their leases fall under 80 years;
- considering the introduction of a right of first refusal for residential leaseholders of houses; and
- thinking about how best to promote the commonhold structure.
Helping freeholders who are subject to estate charges
The Government will legislate to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a residential or mixed use estate have similar rights to leaseholders to challenge the reasonableness of those charges. They will also ensure that, where a freeholder pays a rentcharge, the rentcharge owner cannot take possession or grant a lease on the property for minor payment delays.
Other related reforms underway
The Government has reaffirmed its commitment to improving the situation of leaseholders. As part of this process they are also currently undertaking work to:
- help professionalise managing agents, tackle unfair service charges and give consumers greater choice over who their agent is – the call for evidence on this closed on 29 November;
- ensuring that landlords are signed up to redress schemes, and will consult on whether this should also be extended to landlords who grant long leases; and
- looking at ways to modernise the home buying process, including buyers of leasehold interests. A call for evidence on these issues closed on 17 December.
Developers and investors should read the report carefully and consider speaking to the DCLG in relation to any existing schemes. New development proposals should be reassessed in the light of the proposed legislation