The government says it will ban the sale of new leasehold houses after widespread abuse in the market.  Announcing the government’s plans, Secretary of State Sajid Javid, said he would take action to “create a system that works in the best interests of consumers.”

The government’s consultation on ‘Tackling unfair practices in the leasehold market’ was published last September (see Brunel News, September 2017).  It was concerned that home buyers were being saddled with onerous lease commitments.  Now the government has released its formal response to the consultation and announced the steps it will take to make changes in the leasehold market. These include:

  • Ban on new leases on residential houses, unless necessary. For example, leases may be granted for shared ownership houses.
  • Discourage the use of Help to Buy loans for leasehold properties in advance of any new legislation.
  • Set ground rents for new lease homes at zero.
  • Reforms to make the sale of existing leasehold houses, or purchase of a freehold faster and cheaper. The reforms will be subject to further consultation.
  • Provide existing leaseholders with support and guidance on the forms of redress available.
  • Provide freeholders on managed estates with shared services the same right as leaseholders to challenge the reasonableness of service charges.
  • Re-invigorate commonhold as an alternative to residential leasehold. Commonhold is a form of ownership where flat owners own their units outright and have a share of the ownership of the common parts with other flat owners through a Commonhold Association.

The proposals have been broadly welcomed.  Paul Smee, Director of Mortgages at UK Finance said: “We support the DCLG’s efforts to address the onerous and potentially unfair issues surrounding the leasehold system. Lenders will continue to work with Government and other interested parties to address the complexities associated with leasehold properties, particularly where valuation is concerned.”

James Burgoyne, Director – Claims & Technical, Brunel Professions believes the changes could lead to an increase in negligence claims: “The government is planning to provide leaseholders with comprehensive information about the various forms of redress available to them if they believe they have been miss-sold a leasehold.  There is a risk that property conveyancers and their insurers could face a barrage of negligence claims from disgruntled leaseholders.  In fact, there are already indications that claims management firms are becoming more active in this area. We have also received anecdotal reports of lenders adding terms related to this area to their panel valuation standard conditions.”

The Government has published its summary of consultation responses on its website.  Reports of the case have been published by DAC Beachcroft, the Association of Residential Managing Agents, Browne Jacobson and UK Finance.

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