0370 1500 100

Leasehold Enfranchisement Ban Proposal Put Forward to End "Pernicious" Ground Rents

All new-build houses will be sold on a freehold basis to prevent home buyers from being trapped in exploitative leases, the government has confirmed.

In a speech to the Chartered Institute of Housing, the communities secretary James Brokenshire also said ground rents were “pernicious” and would be scrapped on new leases.

Freeholders and managing agents would also have to provide lease information within 15 working days and at a maximum cost of £200.

His speech showed how far the move for leasehold reform has travelled since publicity over grossly inflated rents first surfaced over a year ago.  The original consultation on ‘Fixing the Broken Housing Market’ was launched in 2017 and triggered over 6000 responses, while comments on the proposed leasehold house ban and ground rent reduction were invited last year. The Minister also reviewed other policy initiatives aimed at addressing the housing crisis.

Undoubtedly the proposed ban on leasehold houses should be applauded, as it will protect buyers from what the Minister called “unscrupulous charges”. It’s particularly welcome that leasehold will be banned immediately for homes in the Help to Buy scheme, despite ministers claiming last February that nothing could be done for another two years.  Figures to June 2018 show 17,500 leasehold homes have been bought with HTB since it launched in 2013.

Leasehold will be allowed in shared ownership, community-led development, retirement properties, and financial lease products such as home reversion plans (equity release) and home purchase plans (lifetime leases and Islamic/Sharia compliant finance) where there is a non-assignable lease. So the legal drafting of such exceptions will need to be clear and tight. 

Pernicious ground rents (for flats) will be reduced to zero. Ground rent investors may feel relieved that this change (when it does come in) will apply going forward and not retrospectively.  However, the Competition and Markets Authority is now investigating whether there has been mis-selling or the forcing of unfair terms in leases which have substantial increases in ground rents and “permission fees” for home improvements. The CMA said last year this was too difficult but has changed its mind under political pressure. Meanwhile 60 players in the housing market have signed up to a “voluntary pledge” to change the terms of existing onerous leases.
I do struggle to see how a modest ground rent can be seen as “pernicious”, particularly as it’s the ground rent which makes a residential portfolio traditionally a ‘safe investment’ for institutions we rely on such as pension funds. But there’s a wider issue. Removing this element suggests that in future leaseholders may to have to become more active and engaged in the running of their sites. Whilst this may be good for some, not everyone will want to be involved or take on the numerous responsibilities that come with the management. 

As a conveyancer, the proposed 15 working day turnaround at a £200 charge to provide leasehold information is music to my ears. But I do wonder how it will be enforced.  And even if it is, it is often the additional enquiries that are raised which delay exchange of contracts and attract additional charges. 

On the wider policy ideas, a New Homes Ombudsman can only be a good thing, as the ombudsman is a proven entity in so many other areas.

Tenants are going to be able to transfer a protected deposit rather than having to provide a new one each time they move. This is a long time coming and is an easy fix, I commend the government for this action.

Planning bureaucracy is to be cut. This isn’t the first time and though this sounds great in theory, what we see on the ground is a substantial number of permissions being granted but nobody taking them up. There’s also such a disparity in practices up and down the country that a one-size-fits-all mentality will only get us so far. Our best hope is experienced and well-funded developers who are willing and able to cooperate closely with local authorities to deliver the housing that we so desperately need. We’re at least slowly seeing a shift to MMCs (Modern Methods of Construction), which is arguably a more time and cost efficient method of construction.

Finally, we have the promise of a new financial commitment to housing. Once that is formally made, the focus will need to shift to actually delivering on it. There’s been a huge turnover of housing ministers over the last 20 years or so, which has resulted in a lack of consistency in approach. For progress to be made they need to stop thinking like politicians and start building communities. 

Published: July 2019

A monthly briefing from Irwin Mitchell Private Wealth

Register for monthly updates

July 2019

Key Contact

Joanna Themistokli