Concerns about the leasehold system are a hot topic in the press, mainly due to claims of rising ground rents. This month, James Parden discusses the problem and action that is being taken…
Growing public unease prompted the government to issue a white paper in February, setting out its aims to ‘improve consumer choice and fairness in the leasehold sector…’
The paper discusses hidden costs that leasehold property owners may not be aware of at the point of purchase, such as significant ground rent increases during the term of the lease.
In Sheffield, much of the housing stock is subject to hugely long leases with peppercorn payments that trouble no one. However, the law in England does not restrict ground rent levels and certain freeholders are making a considerable amount of money.
Some new build properties are being sold with a leasehold title, simply to create an income. There have been reports in the media of leases that permit the ground rent to double every decade, so a house purchased for just under £200,000 that started out paying £295 per year, will be subject to ground rent of £9,440 annually after 50 years. In this scenario, it is estimated the cost of purchasing the freehold would be more than £35,000. As you can imagine, this can lead to difficulties in selling the house or re-mortgaging.
Homeowners can also find that the freehold on whole estates has been sold to a third party without their knowledge. In addition, some leases require the ground rent to be paid in advance and tenants may not be eligible for a refund if their ownership ends part way through a year.
Developers argue new build leasehold properties are commonplace in some areas of England and that selling the freehold could create a potential competitive disadvantage. This may be so, but there is no regulation to ensure a leaseholder is fully aware of the nature of their ownership and the costs they are to incur.
As a result, it is likely reform is on the way. The government’s white paper suggests a number of solutions, including limiting the sale of leasehold houses and the ground rent on properties with agreements of more than 21 years.
An unfortunate consequence of increasing ground rents is that if they exceed £250 per year (outside London), the leases are classed as assured tenancies under the Housing Act 1988 and landlords can attempt an eviction using the well-known Section 8 procedure. The legislation was intended to stop tenants in the private rented sector building up arrears and it is recognised that property owners need exempting from possession orders.
These changes are yet to be introduced, so if you have any concerns about rising ground rent or you are considering purchasing a leasehold home, always ensure your agreement is reviewed by a specialist property solicitor. Contact me for more information.