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15 Oct 2018

Ground rents for new leaseholders to be capped at £10 a year

Government launches six-week consultation into leasehold reform

Ground rents on new leases could be capped at £10 a year under new proposals.

The plan forms part of a six-week consultation launching today, marking the government's latest move as it looks to remedy the ongoing leasehold scandal.

But while the proposals could be good news for people who buy leasehold properties in the future, existing leaseholders trapped in unsellable properties have yet to receive any clarity on whether they could be entitled to redress.

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What is the government proposing to do?

The government has today launched its latest consultation into leasehold reform.

The most significant proposal put forward involves capping ground rents - which often run to hundreds of pounds a year - at a nominal fee of £10 on new leases.

Housing minister James Brokenshire says: 'Unfair ground rents can turn a homeowner's dream into a nightmare by hitting them in the back pocket, and making their property harder to sell.'

The other proposals include:

  • Making it easier for leaseholders to form tenant associations by reducing the minimum number of members required in such groups.
  • Making the process of buying a freehold 'cheaper and more efficient'.
  • A crackdown on rogue landlords to offer tenants greater protection.

Leasehold: the basics

When you buy a house, it will either be leasehold or freehold. If you buy a leasehold home, you own the property itself but not the land it stands on.

This means you'll need to pay an annual fee known as aground rent to the freeholder, as well as aservice charge for the maintenance of any common areas.

Traditionally, leasehold homes have almost always been flats, though in the past decade many developers have started selling houses as leasehold, too. The government is planning to ban this in almost all cases.

Leasehold reforms: what's new?

With the exception of the £10 ground rent announcement, the proposals reiterate those made by the government when it announced its first leasehold consultation in July 2017.

That consultation received 6,000 responses, which resulted in the government saying it would offer 'clear support' for leaseholders with onerous ground rent clauses last Christmas.

Since then, the Law Commission has released a 568-page consultation paper into leasehold enfranchisement for existing homeowners.

Its proposals included giving leaseholders additional rights to buy or extend their lease, and removing the need for them to have owned their property for at least two years before doing so. The proposals are now part of a separate consultation which runs until 20 November.

The Law Commission's report was condemned as 'window dressing' by the National Leasehold Campaign, a Facebook group of frustrated leasehold homeowners which boasts over 12,000 members.

Issues with leasehold houses

These are some of the biggest issues many leaseholders are currently facing:

  • Ground rent doubling clauses:some developers inserted clauses into leases that meant the annual ground rent on properties would double every 10 years. This meant that an annual fee of a few hundred pounds could reach many thousands in 50 years, effectively making the property unsellable. See our video below to find out more.
  • Mortgage issues:mortgage lenders have cottoned on to leasehold issues, with Nationwide and Santander refusing to approve mortgages with ground rent clauses, or where the annual ground rent is more than 0.1% of the property's value.
  • Sales of freeholds to third parties:many leaseholders claim they were told they could buy their freehold after two years, only to then find it had been sold on to a third-party investment company who either had no intention of selling it, or quoted eye-watering sums to purchase it. Freehold sales are allowed by law, but in such situations leaseholders would need to go to a tribunal, where they would have to pay the freeholder's legal costs as well as their own.
  • Permission fees:leaseholders who found their freehold had been sold on were often hit with hefty permission fees to make changes to their property. Our research found quotes of anything from £252 for permission to have a pet up to £2,500 for permission to build a conservatory.

Which? research into the leasehold scandal

Earlier this year, we published the most comprehensive research of its kind into the leasehold scandal, covering everything from ground rent doubling clauses to punitive permission fees.

As part of this project, we spoke to nearly 200 leaseholders. These homeowners raised complaints about houses built by 19 different housebuilders, including seven of the 10 biggest developers in the UK.

You can find out more in our full investigation: 'To have or to leasehold? Inside the scandal rocking the new homes industry'.

Which? has also submitted a response to the HCLG Committee's call for evidence into the progress of the government's leasehold reforms.

Ground rent doubling clauses: a case study

In June, Which? visited Andrea Millward, a leasehold homeowner based in Prescot, Merseyside.

Andrea's lease has a ground rent doubling clause, which means that the £295 a year she pays now will reach £9,440 in 50 years.

Watch the video below for Andrea's story.