The Government's Proposals On Leasehold Reform

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25 August, 2017

Yara Cherbetji

Over recent years there has been a vast increase in the number of leasehold properties being registered at the Land Registry. The number of leasehold properties in England and Wales has almost doubled between 1996 and 2015.

Leasehold properties can seem appealing on the surface, often being marketed at reduced prices in comparison to freehold properties, however many purchasers are unaware that these properties can attract significant ground rents payments, landlord consent fees and/or lease extension fees, making them costly in the long-run.

In an effort to crack down on any unfair practices and make housing more affordable, the Government has issued a consultation paper with a view to creating transparency and fairness in the housing market. The Government has commenced an 8 week consultation period to consider views on the following:

  1. A prohibition on the sale of new leasehold houses (with some limited exceptions). The aim is to restrict freeholders from generating additional revenue from ground rent after completion of the transaction, creating a fairer market for consumers.
  2. Changing the Help to Buy scheme in relation to leasehold houses to support new build houses on acceptable terms. This means that the Help to Buy Equity Loan would only be available for leasehold properties in specific and justified cases, where the ground rent provisions are reasonable.
  3. Limiting the starting value and increase of ground rents on all new residential leases over 21 years. At present leasehold law in England does not limit the amount of ground rent that can be charged, however proposals include limiting ground rents and keeping them at zero (a 'peppercorn'), with some limited exceptions. The Government is also keen to consider how they can tackle existing leases with onerous ground rents, however no specific proposals have been put forward at this stage.
  4. Updating Ground 8 of the Housing Act 1988 so long leases over 21 years with an annual ground rent over £1,000 in London and £250 outside of London cannot be an Assured Tenancy. This would prevent Landlords from seeking to end an occupancy and evict a tenant by an order of the court.
  5. Providing freeholders on private estates with equivalent rights to leaseholders to challenge the reasonableness of service charges via the First-tier Tribunal (Property Chamber). Generally freehold legal arrangements for service charge are set out in the Deed of Transfer, which do not give rise to the same rights of challenge as those available to leaseholders. The aim here is to create some equality and reasonableness for freeholders.
  6. Other potential areas for future leasehold reform include: improvements to commonhold; how managing agents operate; leasehold terms and enfranchisement.

The proposals relate to England only and will not be retrospective, therefore not impacting on existing leases containing unfair terms. The consultation period ends on 17 September 2017, with proposed legislative reforms expected to follow.

For further information on the above or for any commercial property related queries, please contact our Commercial Property Department on 0800 689 0831 or enquire here.

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