Plans to ban leaseholds on new build houses

It is widely being reported in the news today that leaseholds on new build houses could be banned, and ground rents dramatically reduced, under government plans which are subject to consultation.

In February this year, we reported that reported that about 40% of all new builds in England and Wales are leasehold, including 90% of the new build property in London. What was strange about this, was that it wasn't just flats, it was also houses. Strictly speaking, this means that the homeowners are actually tenants under long leases. Read the article: New build houses sold as leasehold.

Frettens' Conveyancing Executive, Jennifer Smith, explains why this is a problem for homeowners. She says “It can be inconvenient if your house is leasehold because, if for example, you want to add a conservatory, you would need the usual planning permission and building regulations approval, but you would also have to ask the freeholder for consent. Also, it is expensive. The value of the lease (and therefore the value of your home when you sell it) falls as it nears the end of its term and you’ll also have to pay ground rent and service charges to the freeholder.”

The problem with leaseholds on new build houses

The leasehold system has existed for a long time in England and Wales, especially in blocks of flats. Leaseholders own their homes for a fixed period of time, on a "lease" to a freeholder, but many have long leases, for example for many decades, and experience no problems. Traditionally houses are nearly always sold as freehold properties, meaning the buyer owns the building and land it is built on outright. But the trend for new-build houses being sold as leasehold has accelerated in recent years.

Today the BBC and others are reporting that when developments of several new houses are built, often the developer sells individual houses with a 150 year lease agreement and are told by the sales team that this is as good as a freehold. Owners are left with the impression that they can buy the freehold in a few years for somewhere in the region of £3,000. However, the developer is able to sell the freehold to an investment company without informing the home owner and the investment company can then ask a price of over £10,000 to the owner to purchase the freehold. This is not illegal. Read the full article on the BBC website.

The proposal to ban leaseholds on new build houses

MPs have described this situation as a "national scandal" and the Department for Communities and Local Government is proposing a ban, stating that it aimed to make future leases fairer by reducing ground rents so they "relate to real costs incurred". The proposals would affect future sales, but those already facing difficulties would generally need to seek redress from the housebuilder or, if the situation was not made clear at the point of sale, their solicitor. The proposals are subject to an eight-week consultation and apply only to England.

If you are in a house which is a leasehold...

If you are buying a new build property be aware of the difference between leasehold and freehold and make sure you understand everything your conveyancer is trying to explain to you.

If you have already moved into a long-leasehold property, you might want to consider your options in taking back control – our lease enfranchisement page might be a good place to start. Our lease extension expert Niki Adkins comments "Residential leaseholders have the right to protect the value of their asset by extending their lease or buying the freehold. Usually we assist people in flats but the same process applies to extending the lease on a house and we are able to help anyone experiencing these problems."

Our Conveyancing Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 and Jennifer Smith or her team, will be happy to chat about your situation and you particular requirements.