Proposed reforms to the leasehold system in England

The government has now published its response to the recent consultation on proposed reforms that will affect the current system of leasehold property ownership in England. 

The government opened the consultation on 15 October 2018 and received over 1200 replies before the consultation closed on 26 November 2018.

The government has now published its response setting out the measures it intends to implement in the proposed new legislation.

1.  Other than in exceptional circumstances, all new houses will be sold on a freehold basis.  Previously, developers had the choice of selling new houses on a freehold or leasehold basis; however, the government will seek to restrict that to freehold only.  This will mean that for the majority of people buying new build houses they will own the freehold and will not need to worry about having a landlord with continued involvement in the property.

2.  Despite initially suggesting there would be a financial cap of £10 per year on ground rents for leasehold flats and houses, the government has now taken the view that consumers see no clear benefit from ground rents and as such they should be fully restricted to a peppercorn (zero financial value).  The key point made is that consumers should only pay for services they actually receive.  So for new leases of flats (and any leasehold houses not subject to the restrictions mentioned above) you will not be required to pay a ground rent.  Unfortunately for tenants, this will not apply to existing leases.

3.  When selling a leasehold property, one of the main delays can be trying to obtain information from freeholders that will be required by the potential purchaser and their solicitors.  This can be costly and cause undue delays in the conveyancing process.  The government are therefore intending to place an obligation on freeholders to provide that information within 15 days and the cost of the provision of that information will be capped at £200 plus VAT.

4.  The restriction on ground rents mentioned above will also apply to replacement leases.  The peppercorn (zero financial value) ground rent policy will however only apply to the newly extended part of the lease.  As such, if (for example) you reach agreement with your freeholder to extend your lease by 40 years beyond the current 80-year term, then it will only be in those final 40 years that the zero ground rent provision will apply.

The government response runs to 71 pages and includes statistics on the responses given by those that responded to the consultation.  Also included in the report are details of potential exemptions to each of the new proposals, which are fairly limited in each case and should limit any opportunity for avoidance by freeholders.

The report indicates legislation will be brought forward by Parliament as soon as time allows to enact those measures. The finer details of the proposals will be of great interest to freeholders and leaseholders alike when the draft legislation is published.

Clearly, the government has shown an intention to redress the balance between freeholders and leaseholders and improve the process of owning leasehold property.

We will bring you further information when the draft legislation is published.

For further advice and assistance in relation to leasehold properties, please contact our new enquiries team on 01474 546013 who can arrange for you to speak to one of our leasehold experts.