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Government crack down on unfair leaseholds

After publishing the white paper “Fixing our broken housing market” in February 2017 the Government are now looking to improve issues for the consumer and have been investigating the leasehold property market. They are ready to share their findings following the consultation that closed on 19 September 2017.

Of particular concern has been the increasing use of geared ground rents, developers have been raising ground rent costs and the Government believe this has become unfair.

According to the Government ground rents have on average been doubling every 10 years. Currently there are no guide lines thus allowing developers to set out whatever charge they like for the ground rent.

Why bother?

The growth of leases with relatively short review periods and substantial increases in the ground rent payable throughout the term of the lease are considered unfair.

Any new Leasehold property will be subject to the new guidelines, all existing leases and ground rents will not be effected.

Communities’ secretary Sajid Javid said that the proposals would “help make sure leasehold works in the best interests of homebuyers now and in the future”.

He provided examples where homeowners have been charged £1,500 by a freeholder before they could make alterations to the property, family home ground rents could be expected to hit £10,000 annually by 2060 in some parts of London.

How to implement

The government would like to limit or ban the construction of leasehold houses and are considering asking building societies to monitor ground rents and lease charges and to make sure they are acceptable.

The government is also concerned that new build houses are being sold on a leasehold basis to create an income stream from the ground rent, or to generate additional income from the sale of the freehold interest after contracts have been exchanged and considers that this represents poor value for consumers.

Ongoing Issues

The Government has highlighted its commitment in the White Paper to promoting transparency and fairness for the growing number of leaseholders and will be considering further steps to achieve this.