The law should be changed to protect leaseholders from being exploited by developers who are using them as a “steady source of profit”, a committee of MPs has said.
The MPs warned that some developers had imposed onerous ground rents, which doubled every 10 to 15 years, on the owners of new-build leasehold houses and flats, leaving them unable to sell their homes or remortgage.
Homeowners with a leasehold only have the right to occupy their property for a set period of time, and they do not own the building outright.
Other issues identified by the Housing, Communities and Local Government Committee included high service charges and one-off bills, unfair permission charges, the alleged mis-selling of leasehold properties by developers and unreasonable costs to buy shares of the freehold or extend leases.
The report said: “Too often, leaseholders – particularly in new-build properties – have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit.
“The balance of power in existing leases, legislation and public policy is too heavily weighted against leaseholders, and this must change.”
What recommendations has it made?
The Committee has called for the Competition and Markets Authority to investigate mis-selling in the leasehold sector and make recommendations for appropriate compensation.
It has also suggested making commonhold – the freehold ownership of homes within a development – the primary model for flats in England and Wales, and ending the practice of selling houses on a leasehold basis.
Other proposals include:
- Introducing standardised key features documents at the start of the sales process making clear what the tenure of the property is, the length of the lease and any ground rent or other fees.
- Limiting ground rents on existing leasehold properties to 0.1% of a property’s value, up to a maximum of £250 per year.
- Setting ground rents on new leases at zero.
- Introducing legislation to restrict onerous permission fees in existing leases.
- Creating a low-interest loan Help to Buy scheme for leaseholders to enable them to extend their leases or purchase a share of the freehold.
Who does it affect?
Government statistics suggest there were 4.2 million leasehold properties in England in 2015-16, of which two-thirds were flats.
The committee said it had received hundreds of letters from people living in leasehold properties detailing their bad experiences with developers, freeholders and management companies.
It added that many leaseholders had been surprised to learn they did not own their property in the same way as a freeholder.
What happens now?
While the committee has proposed a series of wide-ranging reforms to tackle the problems leaseholders face, there is no guarantee the Government will act on all or indeed any of them.
The Government generally has two months in which to publish its response to a select committee report, but it is not obligated to take up the recommendations.
It has, however, previously expressed concerns about leaseholds, and in October last year, it launched a consultation on imposing a cap on ground rents on new-build leasehold properties and requiring the majority of new-build houses to be sold as freehold.
Top 3 takeaways
1. The law should be changed to protect leaseholders from being exploited by housing developers, a committee of MPs has said
2. The committee has called for the Competition and Markets Authority to investigate mis-selling in the leasehold sector and make recommendations for appropriate compensation
3. It has also suggested making commonhold the primary model of ownership for flats in England and Wales, and ending the practice of selling houses on a leasehold basis