The government is planning to crack down on unfair residential leasehold terms – which have hit the headlines in recent months.  The Department for Communities and Local Government wants to restrict ground rents to virtually nil.  Its proposals are intended combat a scandal which has seen homeowners charged excessive and rising annual ground rents.  Communities Secretary Sajid Javid said these could exceed £10,000 a year over time.

New build leasehold properties have become more common in recent years as housebuilders have sought to increase their income from developments.  The leases have often been sold onto investors in residential ground rent portfolios attracted by the regular and rising income.

Now the government believes that the system has become unfair and has launched a consultation to “tackle unfair and unreasonable abuses of leasehold”.  It sought views on prohibiting the sale of new build leasehold houses, limiting ground rents and protecting leaseholders from possession orders.  The consultation closed on 19 September 2017.

Some of the proposals are expected to be uncontroversial, but property law expert Simon Gardiner of Pinsent Masons says that that there are legitimate reasons why houses might be sold as leaseholds.  “A virtual ban on new houses being sold on long leases is one way of preventing perceived abuses of the system by developer landlords, but there is a real risk of throwing the baby out with the bath water,” he said.

Until any changes are made estate agents and solicitors should take care to ensure that their clients fully understand implications of buying a leasehold property, says James Burgoyne, Director – Claims & Technical, Brunel Professions. “It is easy to see a scenario where a professional adviser is accused of negligence by a leaseholder who was unaware that their ground rent could rise significantly in future years,” he said.

News of the case has been reported by Out-Law and CMS Law-Now.  The government’s proposals and consultation paper have been published online.

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