Leasehold new builds; a national scandal?

Property developers who take advantage of home owners are likely to fall foul of the Government’s recent proposals to prohibit them selling the leasehold interest in new build houses.

The Government has recently released proposals to prohibit developers selling the leasehold interest in new build houses in a bid to reduce the opportunity for property developers to take advantage of the market and home owners.

Traditionally, where houses are concerned, it is the freehold interest in the property that is usually sold. This means that the buyer will own the property inclusive of the land on which it is built. If however, you buy the leasehold interest only, it is likely that you will be paying ground rent to the Landlord (owner of the freehold). The ground rent can be any set amount as provided for in the Lease and there are often provisions for rent increases over the years. MP’s have described the situation as a national scandal. It appears that property developers are seeking to retain control in order to elicit money from home owners throughout the duration of the lease term.

In addition to ground rent, home owners often need to revert to the Landlord for consent to deal with the property including for example a re-mortgage of the property. When a leasehold property is sold, home owners often need to approach the landlord for information that the buyers’ solicitors will need to consider i.e. a management pack. Of course any requests for consent or information are likely to attract a fee, which can often only be described as extortionate.

A spokesman for the Department of Communities and Local Government has said “it is unacceptable if home buyers are being exploited with unfair charges and unfavourable ground rent agreements”.

There is always the possibility that subject to an informal agreement between the home owner and the Landlord or by use of the set statutory procedures that the home owner may be able to purchase the freehold interest. The cost of purchasing the freehold is of course a matter for negotiation and arguably another opportunity for the property developers to make some money!