Ban on leasehold houses and escalating ground rents: one step closer

Global Publication October 2018

The government announced in December 2017 that it wants to tackle what it considers to be unfair practices in the residential leasehold market. In particular, it is concerned about new-build houses being sold as leasehold rather than freehold and escalating ground rents in long residential leases, resulting in an additional and often substantial income stream for landlords. However these also create an unforeseen financial burden for the property owner and make it harder to sell or mortgage a property.

As part of its strategy to remedy the situation, the government has just (October 15, 2018) published a consultation: Implementing Reforms to the Leasehold System in England. This seeks views on how to implement

  • A ban on new long leases for houses.
  • A restriction of future ground rents to a nominal value.
  • Measures to ensure that maintenance charges paid by freeholders are fairer.
  • Measures to improve how leasehold properties are sold.

Insofar as the proposed ban on long leases of houses is concerned, the consultation states that it will to some extent be retrospective: once in force, it will apply not only to freehold land but also to leasehold land acquired from December 22, 2017 (when a ban was first announced). It is also proposed that the ban should apply “to assignments of leasehold land once the legislation is in force if a house or houses have been developed on that land after the legislation comes into force”. This seems ambiguous (as are certain other aspects of the consultation) and hopefully will be clarified.

As to ground rents, it is proposed that there should be a cap of £10 per annum on ground rents for all newly created leases with effect from three months after the commencement of the proposed legislation (expected to be mid-2020 at the earliest).

The consultation also invites suggestions as to any exemptions that might be justified, both to the ban and the ground rent cap, examples including retirement properties and shared ownership leases.

The consultation period is relatively short and comes to an end on November 26, 2018.



Contacts

Head of Real Estate, London
Knowledge Of Counsel

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