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Government Leasehold Consultation

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On 15th October the Communities Secretary, James Brokenshire, published a government leasehold consultation on proposed legislation to reduce and then cap ground rents on new builds.

In this latest leasehold news, the government hopes that capping ground rent to £10 per year will prevent circumstances where residents are forced into leaseholds with charges averaging £300 and some as high as £700 per year. If leaseholds become unviable for landlords, the government hopes that these proposals will encourage new builds to be sold as freeholds instead.

What does the proposed government legislation mean?

In his statement at the release of the consultation, James Brokenshire MP said:

“Unfair ground rents can turn a homeowner’s dream into a nightmare by hitting them in the back pocket, and making their property hard to sell. That’s why I’m taking concrete action to protect homeowners and end those unscrupulous leasehold practices that can cost tenants hundreds of pounds.”

The “unscrupulous leasehold practices” to which he refers are the doubling of ground rent clauses on a compound basis that a few landlords implement – exactly how some homeowners end up paying several hundred pounds a year – but there is some concern within the industry that this could be a knee-jerk reaction to what is just a small number of rogue landlords.

While the £10 cap can be seen as a bonus for the new buyer, it will likely have no effect on landlords choosing to simply move the lost revenue on to service charges, which are subject to entirely separate clauses within the contract.

The proposed legislation does make mention of exemptions to the ban for retirement homes (amongst other properties) because communal facility costs are covered through ground rent rather than service cost, and it’s feared that moving that across to the service charges will make these properties unviable for an ever-increasing elderly population. This suggests that the government is aware of the potential for loopholes in service charge costs, and encourages thoughts on this.

It’s clear that upon implementation of the legislation, registering a residential long lease of over 21 years with the Land Registry for any house covered by the ban will no longer be possible. What constitutes a house, however, is still to be decided, and the government welcomes input on this definition, alongside practical remedies for homeowners who’ve been caught out by the ban (for example, transferring of the freehold to them).

As previously mentioned, the government believes that retirement homes should be exempt from the ban, but also suggests exempting:

  • Cooperatives
  • Cohousing Schemes
  • Community Land Trusts
  • Inalienable National Trust land
  • Certain Crown land

This is because in community housing cases, it’s possible that a leasehold would provide tenants with more security than a freehold, and National Trust and Crown land cannot be sold on a freehold basis. As with other aspects of this proposal, they’re also open to suggestions on further exemptions.

For those who wish to view the proposed legislation, it’s available here and the government leasehold consultation is open until midnight on 18th November 2018.