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Tackling Unfair Practices in the Leasehold Residential Market

on Monday, 29 January 2018.

At VWV, we are aware that some developers sell new houses (as opposed to flats) leasehold rather than freehold. Historically this has not caused a problem and was not usual in this area. In more recent years however...

...this practice has become more common, with the leasehold aspects being designed to add value for the developer or the subsequent buyer of the 'ground rents'. With escalating ground rents and service charges this could make properties unmortgageable, and therefore unsaleable. Often the homebuyer has been unaware of the leasehold implications until they try to sell.

The government recently undertook a consultation to seek views on the most pressing areas for reform in the leasehold market. The aim is to provide enhanced protection for tenants and homebuyers. Some of the main proposed changes are:

  • Banning new long leases from being granted on new build houses.
  • Reducing Help to Buy equity loan support for the sale of leasehold houses.
  • Setting at a peppercorn (zero financial value) ground rents on newly established leases of houses and flats.
  • Simplifying the process for flat and house owners who want to buy out their freeholds or extend their lease.
  • Where ground rent exceeds £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant and can be subject to a mandatory possession order if they default on payment. The government intends to close this loophole to protect leaseholders from unfair possession orders.
  • Giving freeholders who pay service charges the same rights as leaseholders, to challenge the reasonableness of service charges through the courts.

These changes will be welcomed by homebuyers but may be some time away in being implemented. In the meantime, it is very important that all homebuyers take good legal advice on these aspects of their purchase to make sure that they are not buying a problem.

For more information, please contact David Marsden in our Commercial Property team on 01923 919 303.

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