Is this the end of leasehold as we know it?

Insights - 06/10/2017

Graham Halsall examines the government’s recent announcement to “Crackdown on unfair leasehold practices”.

In our previous edition of Property Matters, we looked at some of the difficulties facing owners of leasehold properties [https://morrlaw.com/property-matters/].This picked up on a recent surge in reports of horror stories in which leaseholders were held to ransom over exponential ground rents, leading (in some cases) to unsalable properties.

Amid this growing public concern, the government announced plans over the summer to address some of these issues. The campaign is being lead by Communities Secretary, Savid Javid. He was quoted as saying:-

“It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.

“Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.”

The key proposals (which were the subject of an eight week consultation over the summer) include:-

• An outright ban on new build houses being sold as leasehold
• setting ground rents to zero levels (in recent years these have increased significantly, in some cases doubling every 10 years)
• closing legal loopholes to protect consumers – such as leaving some leaseholders vulnerable to possession orders
• changing the rules on Help to Buy equity loans so that the scheme can only be used to support new build houses on acceptable terms

The immediate response to the proposals has been generally positive.

However, in the rush to condemn (and possibly abolish) leasehold ownership, one must be careful not to overlook its benefits, particularly when it comes to communal areas. As a framework for the management of these areas, leasehold ownership has, for the most part, performed rather well. There is talk of replacing leasehold with existing regimes, such as “commonhold” ownership. This is where the property owner would become a member of a common association, which would then own and manage the common parts. However, this, of itself, would need to be scrutinised and amended before it could be a suitable replacement for a system which has worked well for hundreds of years.

It is also not known whether the proposals will be applied with retrospective effect. If not, they will offer scant consolation to those unfortunate leaseholders who currently face the very problem that these proposals are designed to address.

On the other side of the coin, it leaves house builders in a position of uncertainty. Having no doubt budgeted for a certain level of ground rent income, the changes now put that income at risk. Could this lead to a slow-down in house building or lead to developers looking for other ways to supplement the income (the most obvious being increase house prices).

One thing’s for sure is that more uncertainty is that last thing that the housing market needs at this stage.

Whilst it is encouraging to see the government respond positively to what appears to be an emerging pattern of injustice and unfairness, this has to be a measured and carefully thought through response. A knee-jerk reaction benefits neither side of the debate.

For now, leasehold ownership remains in force and, although the current regime has come under fire recently, its effectiveness in many areas should not be overlooked.

Graham Halsall is a Partner in the Dispute Resolution Team at Morrisons and has considerable experience with issues of this nature. Should you have any questions please feel free to contact Graham Halsall by phone 01737 854 577 or by email Graham.Halsall@morrlaw.com