Following on from our open forum in relation to responding to the Government’s Tackling unfair practices in the leasehold market consultation, Communities Secretary Sajid Javid provided the Government’s response to the consultation just before the Christmas break on 21st December.
In case you missed the announcement, the Government’s conclusions mirror quite closely the indications they had already given prior to the Consultation, namely that they were minded to bring forward legislation to effect an almost complete ban on leasehold new build houses and to reduce ground rent to zero for both new build houses and flats.
The Government’s response indicates that the following measures will be put in place to create a system that works for consumers including:
- preventing the sale of new build leasehold houses except where necessary, such as shared ownership;
- setting ground rents on new long leases (for both houses and flats) at zero;
- making the process of purchasing a freehold or extending a lease (i.e. enfranchisement) easier, faster and cheaper;
- providing leaseholders with greater support when exercising their legal rights to redress;
- a wider internal review of the support and advice to leaseholders to make sure it is fit for purpose in the new legislative and regulatory environment;
- ensuring freeholders have equivalent rights to leaseholders to challenge unfair service charges.
It is positive news that Government has acknowledged the need for shared ownership to be an excluded category from the potential restrictions. Shared ownership is a product which is continuing to go from strength to strength and, as a result of the great work of those RPs and developers investing in the sector, is gaining more recognition from both purchasers and wider markets as a genuine and key element of the solution to the housing crisis.
In line with our comments on the Consultation, the exact detail of how these policies will be put into place is yet to be finalised, and the response does state that Government will continue to discuss the finer details with industry. While this is ongoing, it would be prudent for those in the housing industry to proceed with caution in applying any leasehold approach to house sales or agreeing any structures that provide for ground rent returns, even subject to current market accepted conditions, on developments that will be coming to the market in the future. The Government appears to be looking at Help to Buy as a means of applying initial controls in relation to leasehold houses without appropriate justification.
As to existing leaseholds, in particular onerous ground rents already in force, the Government acknowledges that there is no quick solution. However, one possibility which has been mooted is that unfair contract terms legislation may be extended to cover existing leases to stamp our unfair terms and excessive ground rents and that there will be provisions allowing this to be achieved on any assignment. However, as the Government recognises, ground rents have been utilised for decades, and with DCLG statistics estimating the number of private residential leasehold dwellings in England in2015/16 at 4.2 million (of which 1.4 million were leasehold houses), any proposal to deal with existing leasehold interests is going to take some time and debate.