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Government Response on Reforming the Leasehold Residential Market

on Monday, 08 January 2018.

The government recently undertook a consultation to seek views on the most pressing areas for reform in the leasehold market.

The government response has now been published and we are digesting this. However, we are sure that the below will be of interest, and we have provided notes on the 'headline' points from our initial review.

Limiting the Sale of New Build Leasehold Houses

  • The government proposes to ban new long leases from being granted on new build or existing freehold houses

  • Where land is currently subject to a lease, the government does not propose to limit developers being able to build and sell leasehold houses on that land or prevent existing leaseholders from extending their lease or purchasing the freehold

  • Where land is not subject to an existing lease at the date of the consultation response (December 2017), the ban on the sale of leasehold houses will apply

  • The government recognises that some exemptions will be needed (eg to support shared ownership and for some Community Land Trusts or others specific developments) but the tone of the response indicates that these will be very limited

Reducing Help to Buy Equity Loan Support for Leasehold Houses

  • The government do not consider it appropriate for Help to Buy to support the sale of leasehold houses

  • Developers will not be required to stop building leasehold houses under existing contracts but will be expected to work with the government to implement change

  • In advance of legislation being brought in, developers will be strongly discouraged from using Help to Buy equity loans for the purchase of leasehold houses

Limiting the Reservation and Increase of Ground Rents on All New Residential Leases over 21 Years

  • The government intends to introduce legislation so that ground rents on newly established leases of houses and flats are set at a peppercorn (zero financial value)

  • Action will also be taken so that flat and house owners who want to buy out their freeholds or extend their lease can access a simplified means of doing so

Exempting Leaseholders Potentially Subject to 'Ground 8' Possession Orders Due to Their Level of Ground Rent

  • 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.

Service Charges for Maintaining Communal Areas and Facilities on Freehold and Mixed Tenure Estates

  • The government intends to introduce legislation to ensure that freeholders who pay service charges will have equivalent rights as leaseholders to challenge the reasonableness of service charges through the courts.

Future Issues

  • To further improve the situation of leaseholders, the government is also undertaking work to, amongst other things, tackle unfair service charges, modernise the home buying process and introduce a minimum lease term for new long leases on flats

The entire consultation response can be read on the government's website.

The response merely indicates the government's intention at this stage and would be subject to debate and changes during the legislative process. Further, the introduction of legislation (with the exception of the Section 8 loophole) is stated to be subject to parliamentary time - something which is always at a premium, but even more so at present. Therefore, the immediate and long term impacts remain unclear, however, the response makes for interesting reading and the changes indicated will be significant and far reaching if they are implemented.

If you would like to discuss this further, please contact Steven McGuigan on smcguigan@vwv.co.uk.

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