Selling homes on leaseholds could become illegal, house builders are warned

Harriet Thornton

Housebuilders throughout England could be banned from selling new-build homes on leaseholds, to prevent buyers facing excessive charges.

This coincides with law firms experiencing a surge of enquiries from homeowners who have become trapped after buying newly-built homes on leaseholds, meaning they don’t own the land their house is built on, and now face paying spiralling ground rents.

It’s become a growing trend throughout England and Wales, recently described as the PPI of the housebuilding industry by MPs, which has seen a number of national housebuilders, as well as some independent developers, selling houses on long leaseholds.  These often come with onerous review provisions meaning the ground rents that have to be paid to the freehold owner are rising exponentially.  It’s now estimated that 1.2million houses have been sold on a leasehold basis that are home to 4m people.

Under plans put forward by Communities Secretary Sajid Javid, now subject to an eight-week consultation, leaseholds on new builds would be illegal, while ground rents would be massively reduced.  Legal loopholes would also be closed to protect leaseholders exposed to possession orders and rules on Help to Buy equity loans would change so they could only be used for new build houses on acceptable terms.

LCF Law solicitor Harriet Thornton said: “Leasehold houses are nothing new, nor were they something to shy away from, because it traditionally meant paying a minimal ‘peppercorn’ fee in annual ground rent to the property’s freehold owner.

“However, nowadays leasehold houses are often accompanied by ground rents that continually increase and can reach exorbitant amounts.  Plus, there are fees that are charged for things such as carrying out minor building work, and a recent case we handled saw the homeowner charged £2,500 just so they could convert their garage into an additional room.

“We’re currently being inundated with enquiries from worried homeowners who are having to make substantial additional payments on their homes, due to rising ground rents.  Some developers are also selling the freeholds to investors, and people are worried about potential fees they would look to charge for consents under the lease.  As a result of this, people can find it difficult to sell their homes and mortgage lenders might be reluctant to lend against them, which is a horrendous position for people to find themselves in.”

Harriet adds: “There are steps that such homeowners can take, but it can be a complex process and requires expert advice.  Initially anyone who bought a new build property on a leasehold after 2000 should review their lease and check how their ground rent will increase.  Homeowners do have a legal right to buy their freehold after two years, but they’ll need professional legal advice to do so.

“The first question anyone considering buying a new build house should ask is whether they are buying on a freehold or leasehold basis, and if it’s the latter they should read their lease carefully and arm themselves with expert advice.”