The House Trap
Government want to band developers from selling new-build homes as leasehold.
According to the BBC, thousands of families in England are discovering the new-build houses they have bought are in fact, really not their own!
MPs recently described this situation as a “national scandal” and have since declared a ban of ‘unjust’ leaseholds for new-build homes.
The ban will restrict developers from selling new-build homes as leasehold and place limitations on ground rent in order to end the abuse of the system which has affected thousands of people in England.
With a leasehold, the occupier owns the property for the length of time on the lease (usually 150 years), trickery has occurred as freeholds have been sold on to other companies who would charge more for the house-occupier to own it. For example, the company could initially charge £3000 for the homeowner to buy their freehold one year, and the next, if it has been sold, the new company could charge much more – potentially up to £35,000 more than the primary charge. This, perhaps surprisingly, is not illegal to do.
There is also the issue of ground rents. These can increase dramatically (in some cases, doubling every 10 years) which can make the houses impossible to sell-on, or severely financially damage the people living in it.
The lease holding system for flats has worked relatively well, however, developers have been coming under a lot of criticism recently as there is no such justification for building and selling off houses with a lease with the associated problems above. With these new proposals, it may be wise for developers to go for the historic position of selling off a property as freehold and have different documentation with obligations for dealing with communal areas and parking for example.
Communities’ secretary Sajid Javid has said “Enough is enough. These practices are unjust, unnecessary and need to stop.” Javid now has eight weeks to consult on his plan to ban ‘unjust’ leaseholds and proposes to ensure simplicity around contracts.
In the future, we can expect to see cases brought by existing owners who have been affected and face huge bills. Many people are trapped in onerous leases of houses bringing claims against their advisors, now that the full scale of the liability of ground rents are increasing far and beyond the level of inflation being uncovered.