There has been quite a bit of coverage in the national press of late in relation to the sale and management of leasehold houses and some of the commentary can be confusing. In short, the government has decided that the current system of selling leasehold houses whilst perfectly legal is resulting in perverse consequences for some home owners. The government wants to eliminate the practice of selling houses (not flats) as leasehold tenure. Flats have traditionally been sold on a leasehold basis, but there are now 1.2 million houses that have leases, including around 170,000 detached homes.
As a general rule property can be held as leasehold or freehold and on some occasions a leaseholder will hold a share of the freehold. Leasehold tenure has traditionally been used on blocks of flats and in Cornwall for static caravan sites. Due to the communal requirements and particular quirks leasehold is still the best option for flats. That’s not to say that the service charge and ground rent issues highlighted below are not an issue for flat owners but there are remedies already at law to allow leaseholders to purchase the freehold on which the flats sit (or set up and appoint a right to manage company). Leasehold ownership provides for a limited form of ownership in that the term of the lease is usually limited to 99 years and on occasion 125 years. The rest of this article discusses leases used on houses not flats.
In general, the leaseholder can extend the term of the lease but to do so comes at a cost, which some buyers may not anticipate when buying a detached or semi-detached house. The second major issue the government and home owners have is in relation to service charges. This is effectively a charge to provide certain services to the property. The third highlighted issue is that of ground rent, these charges can be hidden in the detail of the house lease and there is a practice to increase these ground rents by a multiple every few years.
In reality, if a new house has been sold and the roads and services have been adopted by the local authority there is little that a homeowner should still be paying the developer for as the developer is not paying for the road maintenance and lighting, any council tax is obviously paid for by the homeowner. If the estate roads and communal lights have not been adopted then an alternative to leasehold houses is the traditional freehold house with an agreement with the estate occupiers to pay the private services (governed by an estate rent charge agreement).
The change in direction of national homebuilders, who typically allow no negotiation around their standard documents means that buyers and their solicitors are very much presented with a take it or leave it option as to whether to proceed with the purchase of a leasehold house.
On ground rent alone the figures that some major national homebuilders are making is reportedly running into the hundreds of millions annually, as such the motivation for the change from traditional methods of house sales/management is fairly transparent. There is certainly no tangible benefit to their customers that they can use to justify the practice and this is what is driving the governments agenda.