88: Government proposes leasehold reform measures

Proposals to address unscrupulous landlord practices such as escalating ground rents and even abolishing the leasehold system altogether have been countered by arguments from others as to the perceived benefits of retaining aspects of the current system. Government has added its voice with a series of proposals to address the most egregious practices. Developers, owners and prospective owners of residential property are left trying to work out what will happen next.

A ban on the selling of leasehold houses (as opposed to flats):

This measure simply prevents long leases of new ‘houses’ being granted. Owners of existing long leases may still sell their homes freely whether houses or flats. Exactly what a ‘house’ is defined to be remains to be seen.

Ground rents in new leases to be set to zero:

‘Ground rents’ are relatively low annual payments from tenants to landlords. Recently these have been abused with new leases providing that ground rents increase regularly and far more rapidly than at rates of inflation. Simple abolition of escalating ground rents in new leases prevents new cases arising. However, leaseholders who already own leases that include escalating ground rents are offered no legislative help. The Government intends to continue to pressure housebuilders that created the problems to assist in resolving them.

Reforms of the leasehold enfranchisement:

The Government’s aim is to ensure that tenants seeking to extend their leases or buy their freehold under existing legislation are able to do so more easily. Exactly how this will be done without depriving landlords of their property compensation at market value remains to be seen.

Reinvigoration of commonhold:

‘Commonhold’ is a form of land ownership introduced in 2004 with the aim of providing an alternative to leasehold ownership with its advantages, but without the disadvantages. It has proved a spectacular failure although the few commonhold schemes that have been created function perfectly well. While tinkering with the commonhold system may help improve perceptions, the changes to leasehold law proposed by the Government, and especially abolition of ground rents, is likely to remove incentives for developers to continue to provide leasehold developments.

The proposed reforms will not instantly resolve the issue of the many thousands of existing leasehold properties which contain material ground rents as well as other clauses now considered onerous. Nevertheless, there is likely to be gradual evolution in the market. In addition, as well as reforming relevant statute law, the Government has made it clear that it will use consumer law to restrict the use of unfair leasehold terms, and raise standards across the property agent sector.

For more information read the Ministry of Housing, Communities and Local Government’s summary, here.