The end of leasehold houses and invesment in the residental ground rent sector

 The consultation paper “tackling unfair practices in the leasehold market” was published in July 2017 and seeks views on the following proposals;

  1. Prohibiting the sale of new build leasehold houses
  2. Restricting ground rents on new leases to a peppercorn
  3. Inviting comments on how to tackle existing onerous ground rents
  4. Closing a loophole and exempting leaseholders potentially subject to possession orders under the Assured Tenancy regime by non-payment of ground rent under a long lease
  5. Providing freeholders on private estates with equivalent rights to leaseholders to challenge unreasonable service charges for the upkeep of communal areas and facilities via the First Tier Tribunal (Property Chamber).

The consultation period will last for eight weeks from 25 July 2017 until 19 September 2017.

Escalating grounds rents and onerous ground rent clauses have received significant press over recent months.

The Guardian recently reported that the purchaser of a one-bedroom flat in Edmonton, north London, currently pays ground rent of £200 a year, however this will double every 10 years to reach £6,400 by year 50.

In May, Nationwide announced they would no longer lend against any new-build leasehold flat or house where the ground rent was more than 0.1 per cent of the value of the property.

The building society also indicated it will refuse loans on new build flats with lease lengths of less than 125 years or new houses with less than 250 years.

The proposals to provide freeholders on private estates with the equivalent rights to leaseholders to challenge unreasonable services charges is uncontroversial, as are the proposals to close the loophole and update Ground 8 of the Housing Act 1988 so long leases over 21 years with an annual ground rent of over £1,000 in London and £250 outside of London cannot be an Assured Tenancy.

Both proposals are welcomed. However, the paper fails to consider what can be done to assist existing leaseholders.

Furthermore, there are concerns that the proposal to restrict ground rents on all new leases may affect investment in the residential sector.

Ground rents form the basis of support for many pension funds because they provide a long term stable income. Any reduction in the level of ground rents generally may impact on those funds. In addition, if ground rent is restricted to a peppercorn there will no longer be any value in selling the freehold to ground rent companies.

If this source of revenue for developers is removed, new build schemes may also become less viable which could have more far reaching consequences.

Anyone wishing to comment has until midnight on 19 September 2017 to have a say by completing this online survey – http://www.surveymonkey.co.uk/r/leaseholdhouses

By Kerry Coleman

Caption: Kerry Coleman, Associate Solicitor in the Property Litigation department at Joelson

About Kerry Coleman:

 Having worked at a number of specialist property law practices, Kerry is able to draw upon her in-depth knowledge of a number of matters. She joined Joelson in June 2017 having initially qualified in 2011, before working at a legal practice specialising in landlord and tenant issues.

Using her extensive experience she is able to advise on service charge disputes, disrepair claims, injunctions, enforcement of covenants, property management issues and possession and forfeiture proceedings.

 

One Response to The end of leasehold houses and invesment in the residental ground rent sector

  1. just replace the words”leaseholds” and “ground rent” with “slavery’; remember, even slavery was “legal”; it is time to abolish this legalised “scam”; this legal fiction by which a house or a block of flats can be separated from the land it is built on.

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