In February 2017, the Government announced in the White Paper ‘Fixing our broken market’ that it intended to improve consumer choice and fairness in the leasehold market, and it planned to tackle unfair and unreasonable abuses of leasehold transactions. 

The Secretary of State has said that for many, the reality of living in a leasehold home has not lived up to the dream, and many people find themselves trapped by the small print in leases.

The Government has announced its proposals on how it will address these issues.

Ban of leasehold in new build houses

Once the proposed legislation comes into force – predicted to be in 2020 at the earliest, it will prevent the registration of a long lease of a house. A long lease here  is defined as a lease for a term in excess of 21 years. Similarly it will not be possible to register the transfer of such a lease in circumstances where it was caught by the ban (this is an anti-avoidance measure).

Acting on the response to the earlier consultations, the Government concluded that while leases can be an effective tool for making multi-ownership more straightforward, such as blocks of flats, there was no justification for its use with houses.

The Government concluded there are alternatives such as

• The use of covenants
• The use of estate rent charges

 

Additionally, the Government will be acting on the Law Commissions proposals to make positive covenants (such as an obligation to pay service charges) easier to enforce against successors in title.

There will be exemptions.

For example, it will still be possible to use leases for shared ownership houses. The Government agrees the lease is still required to effectively manage the joint ownership of property up to the point the homeowner has staircased to a 100% interest, and the freehold is then transferred.

Other exemptions will include

• Community led housing
• National Trust land and certain Crown land
• Retirement villages
• Complex development sites – yet to be defined
• Existing garden cities where appropriate

 

The Government is consulting on what happens if a lease is granted in breach of the ban. Remedies might include requiring the freehold to be transferred to the homeowner.

Alongside reforms to enfranchisement, the Government is consulting on a workable definition on what represents a ‘house’. One concept it is considering is whether to introduce the concept of a ‘residential unit’.

Reducing future ground rents to a nominal value

There has been significant publicity on the high level of rents being imposed by house builders along with crippling rent reviews – some rents doubled every ten years. In the light of this, the Government has resolved to tackle onerous ground rents.

The Government has announced it will introduce legislation which will make £10 per annum a standard cap for future ground rents. This will apply to flats and houses.

Legislation will also provide that

• Any provision in a lease which permits a greater rent than the cap is void
• The lease must state when the annual rent must be paid
• Notice demanding payment must be made at least 28 days before it is due to be paid
• A demand for rent cannot include rent payable in a previous year.

 

Again a shared ownership lease will be exempted where a rent (the specified rent) is payable for the housing association’s retained equity (until bought out). However the Government is aware some housing associations have additionally charged a ground rent – and the Government has said this part will be subject to the cap.

Other exemptions include

• Community led housing
• Retirement properties
• Mixed use leases.

 

Retrospective application of the proposals

The proposals for the ban on leasehold houses will only apply to future leases after the new legislation comes into force. The cap on ground rents will apply three months after the new legislation comes into effect.

The Government has not made any proposals as to how it will offer redress to those homeowners who find themselves locked into existing leases, which contain onerous ground rents and where landlords are seeking high premiums to purchase their freeholds, or pay large fees for obtaining consents (for example, consent to build an extension). Behind the scenes, the Government is looking to the house builders to voluntarily address these issues.