New Leasehold Laws Proposed Could Allow Leaseholders to Purchase Longer Lease Extensions
The Law Commission has unveiled a first draft of potential new measures to reform the law on leaseholds, as part of a wider legislative move to strengthen protections for renters.
The new proposals could see leaseholders given the right to purchase unlimited, longer lease extensions of as much as 125 or 250 years without a ground rent. Under current law, leaseholders of houses are only entitled to purchase one, 50-year lease extension on their property, with a high ground rent attached.
The new proposals could see leaseholders given the right to purchase unlimited, longer lease extensions of as much as 125 or 250 years without a ground rent. Under current law, leaseholders are only entitled to purchase one, 50-year lease extension on their property, with a high ground rent attached.
In addition, the Commission has suggested that current rules requiring leaseholders to own the lease of their house for two years before making a claim be abolished. Such a measure would save renters both time and money, saving them the need to wait – potentially years – to make a claim, whilst their premiums continue to rise.
The preliminary recommendations also include a call for the formula by which leaseholds are valued to be simplified – for example to be set at 10% of the property value – in order to potentially make it cheaper and easier for renters to purchase the freehold of their property.
Set to be developed in a full consultation expected to be completed later this year, the Law Commission’s recommendations aim to address the widespread legal exploitation and vulnerability of residential leaseholders in the UK.
A survey by the Conveyancing Association and Homeowners Alliance recently found that 96.2% of leasehold homeowners were not properly informed of what they were agreeing to before entering into their lease.
Government combats leasehold trap scandal
Last year, it emerged that thousands of new-build homes had been sold leasehold to facilitate exploitative practices, with exorbitant ground rent increases attached to agreements.
As a result, purchasers have found themselves trapped into leasing homes under contracts that include so-called “doubling clauses,” providing for ground rent costs to rise steeply – in some cases doubling over ten years.
The Leasehold Knowledge Partnership estimates that over 100,000 homebuyers have fallen prey to lease commitments with dramatically spiralling ground rents.
In many cases, unscrupulous freeholders were selling freeholds to third-party companies once purchase was complete, without informing the homeowners. In addition to ground rents, unfair lease contracts have allowed freeholders to charge extortionate sums to leaseholders for other services too.
Tenants have reported being charged £100 to have a letter answered by their freeholder, £250 to own a pet and £2,500 for freeholder consent to build a conservatory, on top of planning permission.
Administrative expenses such as the costs of arranging property insurance have been passed on to some leaseholders under the guise of ground rents or service charges. Responding to the scandal in December 2017, the government announced plans to both ban developers from selling leases with obligations to pay any money as ground rent and abolish the sale of new-build houses as leaseholds.
The Law Commission’s report marks the first step towards more wide-reaching and holistic legislative reform in response to the scandal.
Campaigners weigh in
Campaigners and legal experts have offered mixed responses to the Commission’s initial proposals.
Some have been supportive, with one property lawyer stating that the proposal “show[s] the victims of the house leasehold trap that they have not been forgotten.”
Whilst action taken last year to ban the leasehold sale of houses stymied the leasehold con from affecting yet more homebuyers, the legislative reforms championed by the Law Commission would also offer justice for those who have already been affected by the scandal.
However, some critics fear that the proposals remain too favourable to the legal powers of freeholders.
Feedback on the preliminary suggestions will be taken into account by the Law Commission during its consultation, with a final report set to be published in 2019.
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IBB’s team of property law experts are based in Chesham, Buckinghamshire and support clients from all neighbouring areas. We can advise on all aspects of buying, selling and mortgaging property. For more information or advice on buying or selling a property, lease extensions, landlord legal services or any other property matter, please call us today on 01494 790013 or 01494 790071 or email firstname.lastname@example.org .
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