Plan to ban leaseholds on new-build houses is ‘step in right direction’

The government’s plan to ban housebuilders from selling houses as leasehold in England and reduce ground rents on flats to zero following widespread outrage over exploitative contracts has been warmly welcomed by many property investors and industry experts.  

“We welcome the ban for leasehold fees on new build houses,” said Martin Bikhit, managing director of Kay & Co. “High ground rents substantially increase the cost of a lease extension or the purchase of the freehold of a property, so this proposal will make things much fairer for buyers in the long run.”

But while the proposed ban has been ‘welcomed’ by many, the position of some existing leasehold homeowners remains unclear.

The Department for Communities and Local Government (DCLG) is expected to consult on what it can do to support existing leaseholders with onerous charges, which could include tackling unreasonable increases, such as rents doubling every 10 years – and giving more powers to householders to fight unfair charges.

“Under government plans, [ground rents] could be reduced so that they relate to real costs incurred, and are fair and transparent to the consumer,” said the DCLG.

There have been various calls to address the issues surrounding unfair leasehold charges, and now it would appear that the government is finally taking note.

Communities secretary, Sajid Javid, said: “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents.

“Enough is enough. These practices are unjust, unnecessary and need to stop. Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.”

Fresh legislation will close legal loopholes to protect property purchasers, some of whom have faced repossession orders after failing to keep up with the ground rent.

Mark Farmer, government advisor on construction CEO of Cast, a property and construction consultancy, said: “The government’s plan to ban leaseholds on new build houses in England is a step in the right direction for fixing our broken housing market.

“Leasehold agreements for houses and the subsequent ground rents that are charged, artificially distort a housing market that is already struggling with issues surrounding affordability. Banning developers from selling new-build houses on leasehold agreements to drive additional revenue may help recover some of the confidence that the public has lost in the sector.

“Without action on this and the parallel housing quality debate there is a real risk of buyers starting to move away from new build stock which would be a disaster for housing supply.” 

Camilla Dell, managing partner at Black Brick, believes that the planned ban will add protection and a layer of certainty to buyers of new builds going forwards.

She said: “When purchasing any property, new build or not, with a long lease, the ground rent should always be peppercorn, but it does come down to the conveyancing process and for the buyers solicitor to carefully check the sales contract and ensure buyers interests are protected. This is why it’s so important to work with a good lawyer. At Black Brick we have a panel of carefully selected and vetted law firms we trust to look after our clients properly.

“In the past, I have been witness to some very unfair clauses in sales contracts for new builds, where the ground rent escalates disproportionately over time.

“In one instance the ground rent became equivalent to the GDP of a small EU country over the period of ownership [this was in relation to an off plan purchase we were involved with in One Hyde Park back in 2007]. Luckily our client’s solicitor picked up on this point and negotiated it out of the contract, but some buyers will have been caught out. This is an extreme example, but does happen on other developments of lower value.”