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Government crackdown on leasehold abuse slammed as ‘weak’

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Written by: Victoria Hartley
21/12/2017
Industry experts have branded the government’s leasehold policy announcements ‘incredibly weak’ after it was revealed homeowners with leasehold contracts are suffering a raft of unfair and abusive practices.

Leasehold generally applies to flats with shared spaces, making multiple ownership more straightforward, but developers have been increasingly selling houses on these terms.

As far back as July, the government appeared to be gunning for rip-off freeholders and builders selling homes with escalating ground rents, or selling the freehold for substantial profit resulting in rising fees and premiums to leaseholders.

Government measures out today include a leasehold ban on ‘almost all’ new-build houses and changes will also be made so that ground rents on new long leases – for both houses and flats are set to zero.

These measures are a bid to address the issues for 4.2 million leaseholders and the 1.4 million and escalating numbers of leasehold houses across England.

The government said it will also make it ‘cheaper and easier’ for existing leaseholders to buy-out their freehold and there will be better information available about redress for those consumers who face the most onerous terms.

Measures to be introduced

The measures include:

• legislating to prevent the sale of new build leasehold houses except where necessary such as shared ownership
• working with the Law Commission to support existing leaseholders and make the process of purchasing a freehold or extending a lease much easier, faster and cheaper
• providing leaseholders with clear support on the various routes to redress available to them
• a wider internal review of the support and advice to leaseholders to make sure it is fit for purpose in this new legislative and regulatory environment
• making sure freeholders have equivalent rights to leaseholders to challenge unfair service charges

Communities Secretary, Sajid Javid, said: “Real action is needed to end these feudal practices. That’s why the measures this government is now putting in place will help create a system that actually works for consumers.”

The government will be writing to all developers to strongly discourage’ the use of Help to Buy Equity loans for the purchase of leasehold houses before legislation.

Government hit by harsh criticism

The government’s response appears to have taken a patchy approach to the consultation’s recommendations.

Louie Burns, managing director of Leasehold Solutions, said: “Of course, we would welcome any reforms that actually make the leasehold system fairer for the millions of homeowners in England and Wales caught in the web of paying extortionate ground rents, onerous service charges and lease extensions.”

But he added the abolition of ground rents for new leases looks attractive but could in practice create a two-tier market, if older new homes with ground rents look more expensive on the open market.

Burns said: “Essentially developers have got off scot-free and, as usual, existing leaseholders will suffer the harshest consequences.”

Burns also said the government will allow shared ownership to continue being sold as leasehold and made no mention of commonhold, which the Conveyancer’s Association also thought was a more practical option.

“We are also disappointed that the new measures do not address the flawed valuation models used to calculate the cost of lease extensions and freehold acquisitions, which clearly favour the interests of freeholders and cause distress and financial hardship for many leaseholders. Leasehold reform can only be effective if a fair and transparent valuation system is imposed,” Burns added.

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