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In February 2017, the government published a White Paper called “Fixing our Broken Housing Market”.  

Within the Paper the government pledged “to promote fairness and transparency for the growing number of leaseholders” and said this traditional part of the housing market required urgent reform.

The government vowed to “consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold”. The Paper focused heavily on sales of leasehold houses, ongoing sales to ground rent investors, and doubling ground rents.

It promised to help “the tenant of today, facing rising rents, unfair fees and insecure tenures”.

The Consultation

The consultation which followed prompted over 6,000 responses with over 5,000 from concerned individuals.

Communities secretary Sajid Javid said the overwhelming response showed that it was time to replace “feudal practices” with “a system that actually works for consumers”.

Areas of concern

  • Leasehold Houses - It is feared that some purchasers are not aware at the point of sale of the associated costs of buying a new leasehold house, i.e. that there will be ongoing costs via ground rents and contributions towards service charges. The question is, should this be a concern if the lease terms and the reasons for them are fully explained to purchasers at the outset?
  • Unreasonable/escalating ground rents - The Paper referred to ground rents with short review periods and the potential to increase significantly throughout the lease period. Leases with ground rents for example doubling every 10 or 25 years have in some cases been rendered unsellable, with lenders such as Nationwide refusing to lend on them
  • Insecure tenures - Due to a loophole in current legislation, a lease with a ground rent exceeding £250 outside of London or £1,000 within London, may become an assured tenancy. This raises a concern that the lease/tenancy may become subject to unfair possession order for unpaid rent.

Measures

On 5 March 2018 the government published a summary of the responses and its view on the way forward, and outlined measures that it is now considering further.  They include:

  • Prohibiting new long leases on houses - There are likely to be some exceptions to this measure, such as when new-build houses have shared services, are built on land with certain restrictions, or are retirement developments
  • Introducing legislation requiring that all new ground rents are set at a peppercorn, and supporting leaseholders with current onerous ground rents. This area will require careful consideration. If all new leases are granted with a peppercorn ground rent, what will happen with the future management of these buildings?  Developers often want to exit the development on completion, handing over the management to a third party investor or the leaseholders themselves. Not all leaseholders want or are able to manage the buildings, and if there are no ground rent incentives for a landlord, it is difficult to see why anyone would want to be one. Developers will have to look to replace the income they will lose from selling off the freeholds and collecting ground rents, but from where?
  • Taking action to address the loophole in the Housing Act 1988 referred to above.

The possibility of retrospectively changing current ground rents met with significant opposition - except where the ground rents are onerous and the leaseholders are trapped with an unsellable lease.

Timings

Sajid Javid said: “The housing market has taken decades to reach the state it’s now in.  Turning it around won’t be quick or easy. But it can be done. It must be done. And, as this White Paper shows, this Government is determined to do it.”

But whilst the government wants to bring forward solutions by this summer’s parliamentary recess, it’s possible that the small issue of Brexit may delay implementation of any new legislation.

Published: 22 March 2018


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March 2018

Key Contact

Louise Oliver