Leasehold reform praised for cracking down on exploitation

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Jul 26, 2017
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Sajid Javid, the communities and local government secretary, announced plans to reduce ground rents to almost nothing

Stefan Wermuth/Reuters

Lawyers welcomed government moves to end the “great scandal” of new houses being sold as leasehold properties, saying they would crack down on “exploitation”.

Plans to ban the practice and reduce ground rent payments to almost nothing were outlined in a consultation launched yesterday by Sajid Javid, the communities and local government secretary, The Times reported. Javid said he was concerned that while most flats have historically been sold as leaseholds rather than freeholds, in recent years developers have been selling houses as leaseholds, often without buyers fully understanding the contracts. Leaseholds let developers raise ground rents to as much as £10,000 a year.

Brian Dowling, a lawyer at the national law firm Irwin Mitchell, said “a lot of people have found themselves in an escalating situation that can rapidly become unfair”. He continued: “[The government consultation will] amplify calls to provide common standards for transparently disclosing information when selling new build properties. It will also increase pressure on a leasehold industry that, as well as charging ground rents, often charges disproportionate fees for dealing with long leasehold properties. 

“Targeted legislation is welcomed and will reassure new build buyers who shouldn’t have to learn about leasehold structuring when they are trying to move house.” 

Joe Egan, the president of the Law Society, which represents solicitors in England and Wales, said that “while leasehold is a well-established part of English property law, some recent practices which have developed around it are nothing short of exploitative. These often complex and unfair terms can cause huge problems for home buyers”.

However, Dowling warned that if the legislation were rushed it could cause difficulties for complicated mixed use schemes. “There can be valid reasons for charging a rent of more than a peppercorn, or for just selling a leasehold house,” he said. “These include dealing with houses built above basement car parks, duplex apartments above shops, or dealing with 999 year leases.”

Another lawyer predicted leaseholds on houses could eventually trigger a rash of litigation. “We will be seeing people trapped in onerous leases of houses bringing claims against their advisors now that the full scale of the liability of ground rents increasing far and beyond the level of inflation are being uncovered,” said Mike Lewis, a partner at SA Law.

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