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Why leasehold reform is essential

With a new government comes a new agenda, but some of the same arguments around leasehold reform continue to rumble on. This is perhaps to be expected, given that the UK uses a system of home ownership that is still rooted in medieval history.

Leasehold reform is a thorny issue and one where the law of unintended consequences can run riot. But one thing that is universally popular among nearly all leaseholders is the power to become freeholders.

It isn’t hard to see why; it gives you more control over where you live, makes it easier to sell your property and eliminates the need to pay ground rent. That’s why the government is looking at all available options to make this as smooth a process as possible.

No easy feat

With various obstacles in the way, this isn’t always easy. It can include getting other leaseholders in the property to agree to your plans, the fear that you’re taking on potentially unknown liabilities and the need to pay ‘development value’ for any benefits unlocked by taking on the freehold.

The first two issues can be resolved through a process of advice and education, reassuring tentative leaseholders of the benefits of taking on the freehold and guiding them through what can seem an arduous process.

The final issue though – related to development value – poses greater challenges. This is where leaseholders taking on the freehold need to pay the incumbent a fee based on the ‘value’ that any development on the property could add. Freeholders are, not surprisingly, keen on getting this fee as high as possible.

Calculating this value is often a fine art, and freeholders who are being made to sell their interest are, again unsurprisingly, keen on getting it as high as possible. However, this can often prevent people from doing something that the policymakers want to facilitate.

One of the most popular ways to add value to a block of flats is to maximise the airspace above it – something that we specialise in at Apex. The current law can discourage this from taking place, however, because of the fear that a big fee will have to be paid to the freeholder.

Given this, we believe any reform should bring forward a commitment for leaseholders taking on the freehold to only pay development value during initial build.

Unlocking value

In the first instance, this will stop the inequitable situation of new freeholders paying money for something they may not want to pursue. And, perhaps more importantly, it also means that if they do want to proceed with any development, they will have a means of immediately raising the cash through the value that they’re unlocking.

As with every mooted change to leasehold, there will be those who say it’s unworkable and unfair to freeholders. However, it’s an essential way to give them more control over their own homes, while helping unlock billions across the UK housing market.

Here’s hoping our policymakers step up to the challenge and creative positive change in a housing market craving modernisation and greater accessibility.

By Arshad Bhatti

Source: Property Week

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Leasehold scandal pushes freehold house price premiums to eight year high

The price premium being paid for a freehold property by home buyers in England and Wales is at its highest since 2011, enhanced by issues relating to leaseholds, new research suggests.

Using property transaction data, estate agents Benham and Reeves found that the price gap between a leasehold and freehold property was 14.3% in 2011, dropping consistently year on year to just 5% in 2014.

It then increased to 6.9% in 2015 and stayed at around this level before increasing last year in the wake of the leasehold scandal. So far in 2019, the gap has widened from 8.3% in 2018 to a notable 12.3% this year.

Freehold has historically been the preferred method of buying as the home buyer owns the property and the land it sits on and isn’t required to pay any ground rent of service charges. It also means you pay lower conveyancing costs when buying.

However, just over a year ago a leasehold scandal saw new homes sold with soaring ground rents as a result of developers selling freeholds on behind the back of sellers, and this has clearly had an impact with homebuyers paying even more to avoid such a situation.

The largest freehold price gaps are in London’s prime market, with Camden home to the highest with a 227% increase while in Kensington and Chelsea, the average price paid for a freehold property is £4.4 million, some 190% higher than the average price paid for a leasehold at £1.5 million.

Home buyers in Elmbridge are paying 159% more for a freehold, followed by the City of Westminster, Islington and Hammersmith and Fulham.

While London is home to the majority of the largest gaps, Chiltern is home to the next largest freehold price premium outside of the capital at 105%, with South Buckinghamshire also ranking in the top 10 with a 92% freehold property premium.

Despite last year’s revelations, there are still two areas where home buyers are paying more for leasehold homes. Tameside and Sunderland are home to an average price paid for leasehold homes some 6% and 4% higher than freeholds.

‘There is no doubt that the leasehold scandal has had a severe impact on buyer sentiment and the amount people are willing to pay to avoid any of the potential nightmares that unfolded last year,’ said Marc von Grundherr, director of Benham and Reeves.

So much so that the premium paid for a freehold home has already hit its highest levels in nearly a decade and will no doubt continue to do so. A freehold is always the preferable path when buying but unfortunately, not everyone can secure themselves a foot on the freehold ladder, either due to a lack of stock or the additional financial cost,’ he added.

Source: Property Wire

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Leasehold axed for all new houses

All new-build houses will be sold as freehold in a bold move to tackle unfair leasehold practices, and ground rents for new leases will be reduced to zero, the communities secretary has stated.

In a wide-ranging speech to the Chartered Institute of Housing conference in Manchester today, James Brokenshire MP confirmed plans to abolish the selling of new houses as leasehold properties. This will prevent future homeowners from being trapped in exploitative arrangements.

New rules will also be introduced to stop freeholders and managing agents taking as long as they want – and charging what they want – to provide leaseholders with the information they need to sell their home.

There will be a new time limit of 15 working days to provide information and a maximum fee of £200. This should make the home buying and selling process quicker, easier and cheaper.

Help to Buy

The secretary of state has also instructed Homes England to renegotiate Help to Buy contracts to explicitly rule out the selling of new leasehold houses, other than in exceptional circumstances, to protect new home buyers from unscrupulous charges.

Where buyers are incorrectly sold a leasehold home – saddling them with a property that could ultimately prove difficult to sell – consumers will be able to get their freehold outright at no extra cost.

A further 18 property developers, managing agents and freeholders – including Crest Nicolson and Keepmoat Homes – have signed up to the government’s industry pledge.

This commits them to freeing existing leaseholders trapped in onerous deals where ground rents double every 10 or 15 years. This takes the total number of signatories to over 60.

Other proposals

Other proposals unveiled include making it easier for renters to transfer deposits directly between landlords when moving; extra funding for 19 new garden villages with the potential to deliver 73,554 homes; and new measures to speed up planning applications.

New Homes Ombudsman

A consultation has been launched on redress for purchasers of new build homes and the setting up of a New Homes Ombudsman to protect the rights of homebuyers and hold developers to account.

The consultation seeks views on the detail of the proposed legislation and runs until 22 August.

£2 billion affordable homes funding

The communities secretary has opened the bidding process for £2 billion in long term strategic partnerships to deliver additional affordable homes through housing associations with funding available until March 2029.

The government says these new bids will continue to build on the 430,000 affordable homes delivered since 2010.


Brokenshire said: “We have long recognised that we have a responsibility to confront unfairness in the leasehold market. Last year we consulted on proposals including the leasehold house ban and ground rent reduction.

“Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year.

“And we will legislate to ensure that in the future – save for the most exceptional circumstances – all new houses will be sold on a freehold basis.

“We are committed to taking bold action to reform the sector and will be pressing ahead as soon as parliamentary time allows – helping us delivery our promise to make the home buying and selling process quicker, cheaper and easier.

“The government’s proposals have already had a fundamental impact on the housing market since they were unveiled, with the sale of leasehold houses falling from 11% to just 2% this year.”

By Joanne Atkin

Source: Mortgage Finance Gazette

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Thousands of homebuyers in ‘leasehold limbo’

Thousands of homebuyers could still be “sleepwalking into leasehold limbo” despite the government’s pledge to ban new-build leasehold houses, a property expert has said.

In December 2017 then communities secretary Sajid Javid had pledged to end the “exploitation of homebuyers through unnecessary leaseholds” by legislating to prevent the sale of new-build leasehold houses except where necessary, such as shared ownership.

In July this year current communities secretary James Brokenshire put further weight behind the pledge, promising to to tackle “unfair and abusive” practices within the current leasehold system and cease funding of “unjustified” leasehold houses through government schemes.

But one year on from Mr Javid’s initial announcement, it has been claimed developers have continued to sell thousands of new-build houses with leaseholds – some believed to be funded via the Help to Buy scheme.

Phil Spencer, co-founder of property advice site Move iQ, said: “A year on from the government’s pledge to ban the sale of new build leasehold houses, thousands of buyers are still being allowed to sleepwalk into leasehold limbo.

“And in a further ironic twist, many are even being encouraged to do so by the Help to Buy scheme.”

The firm’s analysis of Land Registry figures showed 26,024 new-build properties have been sold with leaseholds since the government’s pledge last December, 2,644 of which were houses.

Data from the Ministry of Housing, Communities and Local Government showed 5,949 leasehold homes were bought with assistance from the Help to Buy scheme in the first six months of this year- 1,340 were houses.

Mr Spencer said: “Millions of Britons live happily in leasehold homes. But anyone buying a leasehold property needs to do so with their eyes wide open, and should take legal advice to understand the obligations that go with owning a home this way.

“While leasehold tenure is normal for flats, the government says it is determined to stop newly built houses being sold in this way – while at the same time offering Help to Buy incentives. These mixed messages are deeply confusing.”

Mr Spencer said when the ban is introduced there should be some redress for the thousands who have bought leasehold houses.

He said: “At the very least they should be given first refusal on the freehold of their home at a reasonable rate, before it is sold on to a third party.”

The Ministry of Housing, Communities and Local Government has recently launched a technical consultation on how to implement reforms to the leasehold system, which shut at the end of November.

It is now considering next steps with a view to bringing forward legislation in due course.

A spokesperson said: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds on new houses.

“We have announced measures to ban leaseholds for all new build houses unless there is a genuine reason, and ensure ground rents on new long leases are set to a peppercorn.”

It is understood that development contracts in place until March 2021 prevent the introduction of an outright ban on the sale of leasehold houses or setting terms around ground rents without giving risk to legal challenge.

But the government said: “We have been clear in telling developers that Help to Buy funding should not be used for leasehold houses, and recent statistics show this practice is already reducing.”

Source: FT Adviser

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Government announces crackdown on leaseholds for new-build houses

Almost all new-build houses will in future have to be sold as freehold, and ground rents will be capped at just £10 a year.

The Government made the announcement at midnight on Saturday, and a new consultation on the plans will be launched today by Communities Secretary James Brokenshire.

The announcement said that leaseholders currently pay on average over £300 ground rent a year, with some paying as much as £700.

There was no suggestion that the move will be retrospective, implying that some recent home owners could still find their properties difficult to sell.

Brokenshire said: “Unfair ground rents can turn a home owner’s dream into a nightmare by hitting them in the back pocket, and making their property harder to sell.

“That’s why I’m taking concrete action to protect home owners and end those unscrupulous leasehold practices that can cost tenants hundreds of pounds.

“While leasehold generally applies to flats with shared spaces, a number of developers have been increasingly selling houses on these terms – placing further financial burdens on those looking to buy a house of their own through unnecessary surcharges like ground rent.

“This can also mean that selling their home is more expensive and take longer than selling a freehold property.

“Under the Government’s proposals, which are subject to consultation, the majority of new houses will be sold as freehold, and future ground rents will be reduced to a nominal sum.

“The consultation will also seek views on what are the appropriate and fair exemptions, such as shared ownership properties and community-led housing to ensure consumers’ best interests are at the heart of the property market.”

Notably, the announcement made reference to the Tenant Fees Bill, saying that the new crackdown on leasehold practices “builds on action under way to make the property market fairer, including a crackdown on rogue landlords and ending unfair charges for tenants”.

The consultation will run for six weeks and estate agents are among those specifically invited to comment.

Yesterday evening, NAEA chief executive Mark Hayward said:  “Thousands of home owners across the country are facing escalating ground rents, charges for making alterations to their properties and unable to sell their home.

“Therefore, it’s only right that the Government looks to crackdown on unfair leasehold practices to stop even more people feeling trapped in homes they cannot afford to continue living in.

“Our recent Leasehold: A Life Sentence? report found almost half (45%) of leasehold house owners didn’t know they were only buying the lease until it was too late, two thirds (62%) feel they were mis-sold and the vast majority (94%) regret buying a leasehold.

“This shows that for too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property.

“However, this announcement is only good news for those looking to buy a leasehold property in the future.

“With 4.2 million leasehold properties in England, many will remain stuck in their lease with no straight forward way out and the industry needs to help them.”

Source: Property Industry Eye

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Developers inflate leasehold house prices while Government fiddles over ban

Property developers are ruthlessly hiking the prices on leasehold houses ahead of a Government ban, Telegraph Money can reveal.

The cost of the average new leasehold house rose 12pc over the past year, while the price of houses sold on freehold terms – where owners have greater control and protection – went up by less than 1pc.

Property investment platform British Pearl, which analysed Land Registry data, said housebuilders were taking advantage of first-time buyers and the Help to Buy programme.

The Government is consulting on reforming Britain’s archaic property rules, including a crackdown on the sale of new-build leasehold homes.

Investment manager James Newbery said: “Britain’s first-time buyers are already hampered by a chronic lack of housing stock, so for property vultures to take advantage is unforgivable.

“Help To Buy is probably partly to blame, with developers leaping to milk these taxpayer subsidised loans for all they’re worth. They simply jack up the prices of existing stock – knowing buyers facing stiff competition are capable of paying more.”

Under property law, a home bought on leasehold terms is actually owned by the freeholder, who wields great power. They collect ground rent, which in some cases increases dramatically over time, and in some cases can obstruct sales.

While almost all flats are sold with leases, most houses in Britain are freehold. However, developers starting selling houses with leases a decade or so ago as a way to boost profits. A year ago the Government promised to ban the sales of such homes, and its proposals are now out for consultation.

The Government estimates that there are more than 4.2 million leasehold properties in England, representing about 18pc of total housing stock.

Mr Newbery said: “It may be years before homeowners realise they were taken for a ride. The Government needs to legislate as a matter of urgency and ban the sale of houses with leases to protect buyers.”

Source: Yahoo Finance UK

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Radical proposal to make escaping ‘leasehold trap’ easier for homeowners raised by Law Commission

A radical proposal to make it easier and cheaper for homeowners to escape the so-called “leasehold trap” and buy the freehold of their houses has been put forward by the Law Commission.

The legal watchdog suggested a change in the valuation formula in order to reduce prices, and a removal of the requirement that freeholders must have owned their house for two years before making a claim to buy it.

But it said the changes would still provide sufficient compensation for landlords.

There are over four million leasehold properties in England, according to a government estimate. While 1.4 million are houses, the majority are flats.

Leasehold has been described as owning the house, but not the land it is on. In effect, it means the buyer owns a property for a fixed number of years on a lease from the landlord.

The Law Commission’s proposals include reducing the price leaseholders pay to the landlord by changing the formula used to calculate the cost, improving the right for leaseholders to buy the freehold from their landlord, and introducing an alternative right to purchase unlimited longer lease extensions without a ground rent.

It also suggested making the enfranchisement procedure simpler to understand, as well as removing the need for leaseholders to have owned the lease for two years before making a claim.

The proposals recommend potentially scrapping whether leaseholders should contribute to their landlord’s legal costs, or a cap on the maximum amount they should pay.

The law commissioner, Professor Nick Hopkins, said: “Enfranchisement offers a route out of leasehold but the law is failing homeowners: it’s complex and expensive, and leads to unnecessary conflict, costs and delay.

“We’ve heard of untold stress caused to homeowners who have had to put their lives on hold because of issues with their leases.

“Clearly, that’s not right, and our solutions for leasehold houses will provide a better deal for leaseholders and make sure that the law works in the best interests of house owners.”

The proposals come after the government announced plans to ban the sale of houses on a leasehold basis.

The Law Commission will publish a consultation paper in September which will be subject to full public consultation.

Source: Yahoo Finance UK

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Leasehold homeowners trapped in unsellable homes

Many new-build leasehold homeowners in England have been trapped paying ground rent fees that rise at an alarming rate rendering their properties unsellable, an investigation has found.

At least one property developer has included punitive doubling of rent clauses, and its recommended conveyancers failed to properly explain these clauses to some buyers, according to the report by campaign group, Which?

One Taylor Wimpey homeowner reportedly told Which? that six years after purchasing the home, she discovered her ground rent fee would double every decade.

It meant that between 2008 and 2058, the ground rent would leap from £295 to £9,440 a year.

The home in effect became unsellable after estate agents refused to market the property.

She had previously been informed by her conveyancer that ground rent would increase every 25 years.

The firm later blamed the wrong information on a “typographical error” according to Which?.

Homeowners left feeling ‘duped’

A trend for selling new-build houses on a leasehold basis has emerged in recent years, with an estimated four million properties in England alone.

Taylor Wimpey last year launched a redress scheme to amend leases so ground rent rises in line with Retail Price Inflation (RPI).

Some homeowners also said they had asked to purchase their freehold upfront but were discouraged by Taylor Wimpey staff, only to later find out it had been sold to a third party.

Which? also received complaints from homeowners whose freeholds had been sold on by other big developers.

Homeowners have been left feeling “powerless and duped”, Which? said.

Permission fees to improve homes

The Which? investigation also found examples of homeowners being hit with unreasonable ‘permission fees’ from third-party freeholders to make improvements to their own homes.

Homeowners reported fees of as much as £2,500 to build a conservatory, £252 to own a pet, £60 to put up a doorbell, £300 to erect a fence and £108 just to make a request to alter their property.

Last year, the government promised to crackdown on unfair leasehold practices by banning the sale of almost all leasehold new build houses and making it cheaper for existing leaseholders to buy their freehold.

Gareth Shaw from Which? Money said: “We found families facing onerous clauses from developers, being badly advised by lawyers and hit with spiralling ground rents that effectively rendered their homes unsellable.

“In some cases they were ordered to pay extortionate retrospective permission fees under threat of losing their homes.

“We look forward to seeing firm action from the government to protect homeowners and ensure no-one loses out as result of these unfair practices in the future.”

What does Taylor Wimpey say?

A spokesman for Taylor Wimpey said: “We listened to the concerns and difficulties that some of our customers were facing as a result of their doubling ground rent lease terms and have taken action to put it right.

“We were under no legal obligation to do this but we want to help our customers.

“In April 2017 we announced a voluntary scheme – the Ground Rent Review Assistance Scheme (GRRAS) – that is specifically aimed at addressing concerns that have been raised by some customers regarding affordability and how easy it is to sell or get a mortgage on properties with a ten-year doubling ground rent clause.

“We have now reached agreements with the freeholders who own the leases, to enable the significant majority of our customers with a 10-year doubling lease to convert their ground rent terms to an RPI-based structure, should the customer wish to do so.

“This will be done via a legal document called a Deed of Variation and if qualifying customers choose to proceed, Taylor Wimpey will both facilitate and cover the cost of the lease conversion on their behalf.

“These agreements address concerns about the saleability and mortgageability of these properties, by making the ground rents much more affordable. We are also in advanced discussions with freeholders who own the remaining small number of doubling leases.”

He added: “All our customers received independent professional legal advice from regulated legal firms when purchasing their property and signing their leases, the terms of which were outlined simply and clearly.

“We would expect all solicitors to explain all aspects of the transaction, including the ownership structure of a property and any rent reviews to their clients.

“We are unable to comment on the advice that any firm of solicitors has provided to its client as that is a confidential matter between them.

“Regarding the freehold sale, similar to all major housebuilders on developments where homes are sold on a leasehold basis, Taylor Wimpey has always sold its underlying freehold interests.

“This is because the administrative structures needed to manage a portfolio of freehold interests are very different to a housebuilder’s core business.

“We are unable to comment on verbal information provided to a customer in relation to their freehold at the point of sale.”

Source: Your Money

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Leasehold home owners slapped with costly fees, says Which?

Home owners in England with leasehold properties are being slapped with costly “permission fees” to make improvements, including £252 to own a pet and £60 to put up a doorbell, according to Which?

Leasehold properties generally require home owners to pay ground rent on their home and there can also be service charges for maintaining any common areas.

The consumer group said in recent months, many leaseholders have contacted Which? about needing to pay permission fees to freeholders and managing agents to make home improvements, citing the double whammy of paying a fee – of as much as £108 – to even make a request, followed by another fee to obtain permission.

It has received complaints from home owners who were asked to pay as much as £2,500 to build a conservatory, £252 to own a pet, £60 to replace a doorbell and £300 to erect a fence.

One Which? reader feared her property was going to be repossessed after she built an extension and this concern was only lifted after she agreed to retrospectively pay a £1,600 fee, the consumer group said.

Which? said that in an attempt to avoid paying ground rent, some home owners had asked to purchase their freehold up-front.

But some leaseholders told Which? they had been discouraged at the time of buying the property – only to find later that the freehold had been sold to a third-party company.

The consumer group said some home owners could find themselves effectively “trapped” in properties they may struggle to sell on.

In December, the Government announced a new crackdown on unfair leasehold practices – including making it cheaper and easier for existing leaseholders to buy out their freehold and better information available about redress for people who face the most onerous terms.

Gareth Shaw, Which? money expert, said: “We look forward to seeing firm action from the Government to protect home owners.”

A spokesman for the Home Builders Federation said: “Leasehold is in itself a secure and proven tenure that helps protect millions of home owners.

“It works well for the vast majority of people who own their home with a lease in instances where they are interdependent and where facilities, grounds and services are shared by multiple households.

“The terms of leases should be proportionate and clearly communicated to buyers whenever they purchase a home. The industry continues to work with government and other stakeholders to ensure that leasehold terms are fair and transparent, providing confidence to homebuyers and existing leaseholders alike.”

Source: Yahoo Finance UK

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Rip-off leasehold reforms ‘don’t go far enough’, say campaigners

When people buy their own homes they believe they will own their house – but for many leasehold homeowners, the true owner of their home is a faceless company which can sell on their stake without their knowledge or consent.

Jo Derbyshire bought her home near Bolton, Greater Manchester, eight years ago. She was aware she was buying a leasehold and knew the ground rent of £300 year would double every 10 years.

The mother-of-two planned to buy the freehold, priced at £5,000, as soon as she had the money. But a year later the property developer sold it to an offshore investment company which repriced it at £50,000.

She says: “It’s a huge amount of stress and worry and I don’t really know if I’m a homeowner anymore.

“When I first bought this house with the leasehold, my understanding was that I owned the house but I didn’t own the land. Whereas I’ve found out that legally I’m effectively just a tenant and I’m paying a huge mortgage for the privilege of having the right to live in this property for the terms of the lease but I don’t actually feel like I own it.”

Ms Derbyshire is now stuck with a doubling ground rent which will cost almost £10,000 a year after 50 years of ownership. This sort of practice has been labelled the PPI of the housing industry.

While Scotland has abolished leaseholds, there are more than 4 million people like Ms Derbyshire in England, trapped in lease agreements and worried about their home ownership. Around 100,000 homebuyers are thought to be in contracts with spiralling ground rents, paying around £4bn in service charges.

The Government says it is “unacceptable for homebuyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms”.

And the Ministry of Housing, Communities and Local Government has announced new measures “to cut out these unfair and abusive practices”.

Among the Government’s new proposals is a ban on the sale of new properties as leaseholds, but that doesn’t help the thousands of people trapped in existing rip-off leases like Ms Derbyshire. And many are calling on the Government to do more, sooner.

Sebastian O’Kelly of the Leasehold Knowledge Partnership says: “My appeal is to the MPs on the Communities Select Committee to call in these housebuilders, the chief executives who are on ridiculous remuneration packages, one getting a bonus of £120m for example, and call in the chief executives of the ground rent funds.

“So far as we can identify them of course, the ones based offshore might be a bit more tricky, but call them in and give them the Phillip Green treatment. These people hold the destiny of millions of people’s lives in their hands and they’ve seriously disadvantaged them with these rip-off leases.”

For Ms Derbyshire she has little option but to stay in the house she’s bought, feeling like a tenant, campaigning for change.

“It’s a real David and Goliath fight where we’ve got all these developers who are making, let’s face it, obscene profits from building houses and selling freeholds against us hardworking families and we’re trying as hard as we can to make change happen,” she says.

The Government’s leasehold reforms are expected to come into force in 2019.

Source: Yahoo Finance UK