Tackling Unfair Practices in the Leasehold Property Market
Home Ownership
There are two different forms of legal ownership, freehold and leasehold. Your estate agent will not always tell you if you are buying a freehold or leasehold property and you should rely on your solicitor or property lawyer to define and explain this to you. The type of ownership can determine if a home is worth buying or not. Getting it wrong can be very expensive.
What is Freehold Property
Outright ownership of the property and land on which it stands, in perpetuity. Upon completion of your purchase you will own the freehold title at HM Land Registry. You will not have to pay ground rent, you will not have a freeholder potentially failing to maintain the building or potentially charging a large amount to do it.
What is Leasehold Property
You own the property, but you are subject to a lease of the land upon which the property stands, for a fixed term of years that will expire unless renewed or extended. Upon completion of your purchase you will own the leasehold title at HM Land Registry. Leases have varying terms that are usually for a long period of time such as 99 years, 125 years, some leases are for 999 years but leases can be as short as 40 years. Leaseholders often must pay ground rent, service charges/maintenance costs and often must obtain permission from the owner of the freeholder (sometimes called the landlord) for major works and could be subject to various restrictions. If a leaseholder breaches any of the terms of the lease, then the lease can be forfeited.
Tackling Unfair Practices in the Leasehold Property Market
The Department for Communities and Local Government launched a consultation in 2017 regarding the Leasehold Property market and some unfair practices that we have seen are already prompting changes in the marketplace.
The government consultation considered several proposals, including:
- Limiting the sale of new build leasehold houses to exceptional circumstances that must be defined, for example, shared ownership properties with a restricted ‘staircasing’ lease
- Limiting the reservation and increase of ground rents in new leases over 21 years. The preference would be that ground rents would start and remain at one peppercorn. Local Authority sales of houses under the Right to Buy scheme and Housing Association sales of houses under the Right to Acquire scheme would likely be exempt
The consultation received over 6000 replies highlighting this as an area of concern and interest.
The governments response to the consultation can be summarised as:
- Limiting the sale of New Build Leasehold Houses
- Reducing Help to Buy Equity Loan support for leasehold houses
- Limiting the reservation and increase of ground rents on all new residential leases over 21 years to a peppercorn
- Support for existing leaseholders, such as making buying a freehold or extending a lease easier, faster cheaper and fairer
An issue that we have seen is that some large builders of new build properties have in some cases included clauses in their leases doubling the ground rent on a property every 10 years. If this is disproportionate, then over time it can affect the value of the property. As the term of the lease progressed, you would end up having to pay a very large sum in ground rent.
If you are purchasing a leasehold property, as part of the work we do for you in a conveyancing transaction, we read and interpret the lease on your behalf and then advise you on the terms of it. This includes advising you on the amount of the ground rent now and the terms of how it may increase in the future. We advise you and your mortgage lender and if the terms are unfair then you and/or your mortgage lender may decide not to proceed.
We have recently become aware of a national house builder offering new build property owners to buy their freehold from them. By purchasing the freehold you would not then be subject to the provisions of the lease and any onerous ground rent provisions could then be disregarded.
We offer a generous discount for group/estate instructions so if you and your neighbours have been offered to buy the freehold to your property then please do not hesitate to get in touch with us.