RLK, Conveyancing Solicitors in Birmingham, look at an upcoming ban on new-build leasehold properties
Whilst the legislation still needs to be passed, on 27 June 2019 the Ministry of Housing, Communities and Local Government announced; all new-build houses, save for exceptional circumstances where justified, are to be sold on a freehold basis.
Unfortunately, a timescale for when this legislation will come into force is yet to be provided.
A Reform on the Sale of New-Build houses as Leasehold
The reform on the sale of new-build houses as leasehold comes in the wake of Government warnings earlier this year. The Government cautioned that leaseholders are being taken advantage of by freeholders, managing agents and developers. The significance of owning a freehold title is that a freeholder has full ownership of the property, whereas a leaseholder only has the right to live at the property for a fixed period of time under the lease. At the end of the lease, the property returns to the landlord who owns the freehold title. Leaseholders are therefore often required to pay annual fees such as service charges and ground rent to the landlord. In addition they may also have to pay further charges to the landlord in order to make changes to the property.
An Exploitative Leasehold Market
The aim of this reform is to address the unfair and exploitative leasehold market. The leasehold market is seeing increasingly more homeowners struggling to sell their property on the terms of their lease. Whilst leases can typically last for up to 125 years, the term of the lease continues to run regardless of any subsequent purchasers. Lenders are however increasingly reluctant to lend on a leasehold property which has less than 80 years left on the lease term. This means that, in order to sell the leasehold title, leaseholders may be forced to incur the expense of extending the lease in order to attract a buyer.
First-Time Buyers and New-Build Leasehold Houses
Some reports suggest that first-time buyers in particular are being misled by developers into buying new-build leasehold houses on the understanding that they can purchase the freehold from the developer after only a few years. They buy the property in good faith, only for the developer to subsequently re-sell the freehold title. This introduces a new landlord into the equation, often with negative consequences. In some cases, the new landlords are either unwilling to sell the freehold, or charge huge amounts for the leaseholder to purchase the freehold. These typical scenarios emphasise the need for this reform.
How Far Will This Proposed Ban Extend?
At present, the proposed leasehold ban will only apply to new-build houses. This means that new-build flats and pre-existing properties could still be sold as leasehold. Whether or not the Government will announce further plans to introduce a reform for new-build flats or existing leasehold properties remains yet to be seen.
Rubric Lois King, Conveyancing Solicitors in Birmingham
It’s vital to seek suitably qualified advice when purchasing leasehold and freehold properties. Please contact our Property Team at RLK for further advice. Call 0121 450 7800 or send an email to: firstname.lastname@example.org.
* This article does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to provide information on issues that may be of interest. Specialist legal advice should always be sought in any particular case.*