Information about the ban on new leaseholds for new buildings
July 29, 2019
By AFG LAW’s Fiona Jackson
Back on 27 June 2019 James Brokenshire the Secretary of Ministry of Housing, Communities and Local Government and MP announced that there was to be an immediate action to ban Help to Buy developers selling Leasehold houses. All new build houses will need to be sold on a Freehold estate tenure rather than a Leasehold interest.
Homes England will now renegotiate all Help to Buy contracts to “explicitly rule out the selling of new leasehold houses, other than Flats to protect new home buyers from unscrupulous charges.
Why is this happening?
This is due to the new sweeping moves by the Government to stop the unfair practices for new build Leasehold houses which have seen homeowners trapped by greedy Landlords and Freeholders.
James Brokenshire also confirmed that all pernicious ground rents on all new Leases will be reduced to a peppercorn ground rent (i.e. nil value) in a bid to prevent Leaseholders from being charged excessive fees without receiving any benefit.
This decision followings on the ongoing scandal in which some developers have taken the advantage of their Leases to boost their profits.
In fact some 100,000 have been caught in this “spiders web of a leasehold scandal” with the home owners having to pay excessive ground rents – which they must pay to the Freeholder to “rent the land “ for the term of the Lease.
In severe cases, the high ground rents which are caught in this scandal double every 5 or 10 years have left home owners unable to sell their houses as both Buyers are Lenders are not willing to purchase the same.
Furthermore the Government have announced that all Leasehold owners who were incorrectly sold a Leasehold property will be able to get the Freehold title outright at no extra cost.
Flats and Apartments will still need to be sold on a leasehold tenure due to how the run in practice with the maintenance charges for the common areas, insurances etc. However the Government has again capped the ground rent at a peppercorn (nil value).
Furthermore the Government have also announced that all Freeholders will be capped on the time they can take and the amount they are able to charge for virtual information regarding the Lease ie service charge information, ground rent receipt and notice fees etc. Moving forward the Freeholders and their Agents will have a maximum of 15 workings days to send out the information and can charge no more than £200 for the service.
“SO JUST WHAT HAPPENED AND HOW DID THIS SCANDAL ARISE?”
This is a very good question.
I believe that it came about due to the housebuilders deciding to increase their profits around the time of the housing market crash in 2007/8 and made a decision that all new build houses would have a leasehold interest title granted rather than a Freehold.
This way they could charge high ground rent in some cases being over being over £250 and then doubling every 5 or 10 years or in the majority of cases to be increased under the RPI scheme, rather than on low fixed ground rents which had been granted in the past.
Once over £250 by one penny then another area of the Law comes into play insofar as the Lease will automatically convert into an Assured Shorthold Tenancy under the Housing Act 1988.
This throws an additional problem into the can of worms insofar if the ground rent is not paid for more than 3 months or more “whether demanded or not” then unless the arrears are settled before the date of the court hearing, the Judge has no option as it is a mandatory ground but to forfeit the Lease and hand back to the Freeholder. This means both the Home owner and Lender are left with no asset or security.
This is something that AFG/I can assist with – I can approach your Freeholder to request a Deed of Variation prepared to include a clause to issue Notice to the Lender to clear any arrears. You can also obtain a lender’s indemnity policy to cover as well by way of a “belt and braces” comfort blanket.
The site sales offices would then tell the home buyers that they could then purchase in their freehold after they had owned the house for two years (which the law provides ) and at a fixed relatively low amount.
What they or the Freeholders did not tell the home owners was that they could or indeed would sell their Freehold estate to offshore Investment Companies before offering to sell the same to the individual home owners.
AND THIS IS JUST WHAT THEY DID ……
As such the new Freehold Investment Companies when approached by the Leasehold home owners would agree to sell but at an inflated and very much increased purchase price for this estate in land in order to boost their profits even more !
This left the poor Leasehold home owner who wanted to purchase the freehold seeing their initial quotation of say £4,000 increase in some cases to £14,000 which is totally unaffordable and not justified?
However the new rules are not retrospective and will only apply to new homes and as such they do not directly help those which are currently caught in the Leasehold scandal trap.
There is a National Group, The National Leasehold Campaign group which can be found on Facebook and Twitter.
James Brokenshire also said that he “was committed to taking bold action to reform the sector and would press ahead as soon a Parliamentary time allowed for the same”
The Government have clearly taken on board this National Leasehold scandal and has stood up to unscrupulous Freeholders who merely make money out from the Leasehold home owners.
If you require any further information of the leasehold Scandal, Leasehold reforms or any other residential conveyancing matter please call and speak with the author of this Blog Fiona Jackson here at our Bury office, or Carl Fletcher in our Bolton Cannon Court office.
We can check your title and advise you on the same.
Please contact Fiona Jackson on 0161 359 3880 if you need further information or have a specific matter to discuss. Fiona is also able to speak on this matter and has done so at a number of seminars.