Leaseholds to be banned on new builds in England
According to the Land Registry, £2bn of new build leasehold houses were sold in England and Wales in the last year alone. In the same period, 42% of new build houses and flats sold were leasehold properties – some with leases of up to 999 years.
However, under proposals announced by the government, builders will be banned from selling new build houses as leaseholds and ground rent on leasehold flats will be cut to zero or dramatically restricted. This follows widespread criticism over exploitative contracts by new build developers.
But what is the current law around leaseholds on houses, particularly new builds? And how will this change for those wishing to buy a new build?
What is the current situation around leaseholds and new builds?
When you buy a new build property from a developer, there’s a good chance that it’s a leasehold property. Unlike freehold properties, with leaseholds you don’t own the ground upon which the property is built on. Instead you lease your home from the freeholder (or landlord), which gives you the right to occupy the property for as long as the lease is valid.
The vast majority of leases are long-term – 90 to 125 years is standard, but some are as high as 999 years. However, leaseholders have certain obligations to the landlord – such as the need to pay ‘ground rent’ and service charges (both of which can be variable), as well as having to seek permission before making home improvements or changes to the building or its structure.
In some cases, the leaseholder will be able to purchase the lease from the freeholder – enabling them to own both their property and the land on which it stands.
What does this proposed ban mean for people buying a new build?
Banning new build houses from being sold as leaseholds will enable property owners to buy their property as freehold – enabling them to avoid the issue of spiralling ground rent. Flats however, can still be sold as leasehold, but the ‘ground rent’ will be limited. This is to prevent the freeholds reversion to leases becoming valuable to prospective buyers.
This will also protect homeowners from having to pay exorbitant ground rent, leaving them with potentially unsellable homes.
Stephen Parker, Partner and head of the buying + selling department comments, “The proposed changes were kick-started because of a trend in the North in particular, to sell houses on what was termed “virtual freeholds”, which were in reality, leaseholds with mechanisms in the leases for very steep rent rises. If you worked out the rises over times, in some cases the rent would be so much the properties would eventually be impossible to re-sell.
Sales offices made misleading promises about the ability to upgrade i.e. buy the freehold at low cost. The whole has therefore been beneficial for all leasehold new build buyers who otherwise, have little bargaining-power, typically.”
But what if I’ve already bought a new build?
So far, the proposed ban will only apply to new build properties after the legislation has been passed through parliament. Currently, there are no plans to remove all leaseholds from properties over the UK.
If you’d like more information on new build properties or have any questions around leaseholds and freeholds, talk to our experienced conveyancing solicitors in Bristol on 0117 905 9763 or contact us through our online form.