All new houses in England and Wales will have to be sold as freehold properties as part of sweeping government reforms to phase out the “feudal” leasehold system.
The reforms are set out in a Leasehold Bill being drawn up by Michael Gove, the levelling-up secretary, for the King’s Speech, which will also overhaul the process of extending leases and give leaseholders more power to manage their building and service charges. Whitehall sources said it would make it easier and cheaper for millions of people to buy their homes outright.
While many people are freeholders who own their properties outright, about ten million are leaseholders in England and Wales. They own the right to occupy their home but the building or land is owned by the freeholder or landlord.
Many leaseholders have to pay extra costs including ground rents and service charges. They often have to pay tens of thousands of pounds to repair common areas of their buildings, even if they disagree with the work being done, as well as large sums in opaque fees and commissions.
Some are trapped by onerous ground rents which are either doubling or increasing in line with the retail prices index (RPI) rate of inflation and are now struggling to obtain a mortgage or sell their properties.
The government has already legislated to cap ground rents on new properties and in January Gove said he intended to abolish the leasehold system, describing it as an unfair and “outdated feudal system that needs to go”.
His plans were initially blocked by Downing Street, which believed they were too radical. However, he has now reached a compromise with the prime minister, Rishi Sunak, that insiders say will lead to a gradual phasing out of leasehold properties.
Under the proposed reforms, the government will legislate to ensure that all new houses built must be sold as freehold, although new flats can still be leasehold.
Ministers also plan to cap all existing ground rents to a “peppercorn” rate and will run a consultation process of the issue within weeks, alongside the bill. It is expected to be one of the first pieces of legislation introduced in the new parliamentary session before Christmas.
Whitehall sources said that capping ground rents would significantly reduce the amount it costs leaseholders to buy the freehold of their property and would also act to disincentivise landlords to cling onto their stake in the property and buy up other freeholds because it would be less commercially attractive.
Ministers will also legislate to change the standard contract lease extension from 90 years to 990 years and remove the requirement for someone to have lived in the property for two years before they can negotiate an extension.
The reforms are designed to help people like Sashikanth Dareddy, 37, who bought a 25 per cent share in a three-bedroom flat through shared ownership in Beckton, east London. It was only when he “staircased” to 100 per cent ownership in 2019 that he discovered a “minimum rent” clause for £750 a year that increases in line with RPI every five years. Dareddy estimates that it had already risen to £900 per annum by the time he found out.
Worried about the consequences, and aware that newbuild homes were being built in his area with a peppercorn ground rent, he decided to pay £26,000 to extend his lease for another 90 years so he, too, could get rid of his escalating annual charges and put his home on a level playing field with other local properties.
Gill Potter, a 56-year-old company director, is struggling to sell her one-bedroom flat in Hertford. Her £250-a-year ground rent increases in line with RPI every ten years and the next increase is due in 2026.
Potter’s buyer dropped out of the sale as the lender will not confirm a mortgage offer unless the ground rent is capped at £250 a year, which the freeholder is refusing to do. She was forced to remortgage the property at four times the mortgage rate she was previously on.
“With these toxic ground-rent clauses, I am left with a property that is effectively a worthless asset that I can no longer afford the mortgage payments on,” Potter said. “There’s a lack of properties in this country but tens of thousands of people who can’t sell because of the ground rent situation and there’s a massive knock-on effect.”
The costs of negotiating an extension rise dramatically when a lease falls below 80 years as “marriage value” is added to the calculation, reflecting the property’s value increase once the lease has been extended.
Ministers will now legislate to remove marriage value so they can sell and remortgage their properties.
The bill will also extend leaseholders’ “right to manage” (RTM) — to hire and fire property managers, or take control of the communal parts in multi-occupancy buildings.
Introduced in 2002, the right to manage does not apply to buildings where more than 25 per cent of the building comprises commercial units, such as shops or offices. Some leaseholders face extortionate service charges of up to £30,000 a year in these buildings, but are powerless to control them because their flat is on top of a hotel, for example.
The Leasehold Knowledge Partnership, a charity, claims residents that take over the running of their buildings have an average cost saving of 20 per cent.
John Greenway and his wife Jenny own two one-bedroom flats in the 64-flat development Eden Square, in Urmston, Greater Manchester. Now they live in Dubai and rent them out because they are struggling to sell due to the high costs associated with being leaseholders.They are unable to use RTM as the flats are on top of a shopping centre.
Greenway said: “We just want to be given a fighting chance to run our own affairs. If we had it, we would kick those idiots [the management company] out right away. It is not possible for [the residents] to run it any worse.”
Goves appears in construction enquire every couple of weeks.
Banning directors, sorting out cladding, moving forwards with judgements and getting the industry to move.
It has not gone unnoticed.
I’ve never really understood many aspects of leasehold. Our first flat was leasehold. The lease was something like 100 years (so the owner will never profit from it), there was zero ground rent/service charges (so the owner made nothing from it). We never had any contact with the guy from moving in to the day we sold the flat.
What was the benefit to this guy of owning the leasehold? It seemed utterly valueless under the described terms.
Only for them to be snapped up by landlords and rented back to you at eye watering rates. The alternative is living on the streets, vile serfs. Let’s be real, the idea of paying a share of your income, from your toil and labour, to somebody who does nothing to earn it themselves is about as feudalistic as it comes.
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All new houses in England and Wales will have to be sold as freehold properties as part of sweeping government reforms to phase out the “feudal” leasehold system.
The reforms are set out in a Leasehold Bill being drawn up by Michael Gove, the levelling-up secretary, for the King’s Speech, which will also overhaul the process of extending leases and give leaseholders more power to manage their building and service charges. Whitehall sources said it would make it easier and cheaper for millions of people to buy their homes outright.
While many people are freeholders who own their properties outright, about ten million are leaseholders in England and Wales. They own the right to occupy their home but the building or land is owned by the freeholder or landlord.
Many leaseholders have to pay extra costs including ground rents and service charges. They often have to pay tens of thousands of pounds to repair common areas of their buildings, even if they disagree with the work being done, as well as large sums in opaque fees and commissions.
Some are trapped by onerous ground rents which are either doubling or increasing in line with the retail prices index (RPI) rate of inflation and are now struggling to obtain a mortgage or sell their properties.
The government has already legislated to cap ground rents on new properties and in January Gove said he intended to abolish the leasehold system, describing it as an unfair and “outdated feudal system that needs to go”.
His plans were initially blocked by Downing Street, which believed they were too radical. However, he has now reached a compromise with the prime minister, Rishi Sunak, that insiders say will lead to a gradual phasing out of leasehold properties.
Under the proposed reforms, the government will legislate to ensure that all new houses built must be sold as freehold, although new flats can still be leasehold.
Ministers also plan to cap all existing ground rents to a “peppercorn” rate and will run a consultation process of the issue within weeks, alongside the bill. It is expected to be one of the first pieces of legislation introduced in the new parliamentary session before Christmas.
Whitehall sources said that capping ground rents would significantly reduce the amount it costs leaseholders to buy the freehold of their property and would also act to disincentivise landlords to cling onto their stake in the property and buy up other freeholds because it would be less commercially attractive.
Ministers will also legislate to change the standard contract lease extension from 90 years to 990 years and remove the requirement for someone to have lived in the property for two years before they can negotiate an extension.
The reforms are designed to help people like Sashikanth Dareddy, 37, who bought a 25 per cent share in a three-bedroom flat through shared ownership in Beckton, east London. It was only when he “staircased” to 100 per cent ownership in 2019 that he discovered a “minimum rent” clause for £750 a year that increases in line with RPI every five years. Dareddy estimates that it had already risen to £900 per annum by the time he found out.
Worried about the consequences, and aware that newbuild homes were being built in his area with a peppercorn ground rent, he decided to pay £26,000 to extend his lease for another 90 years so he, too, could get rid of his escalating annual charges and put his home on a level playing field with other local properties.
Gill Potter, a 56-year-old company director, is struggling to sell her one-bedroom flat in Hertford. Her £250-a-year ground rent increases in line with RPI every ten years and the next increase is due in 2026.
Potter’s buyer dropped out of the sale as the lender will not confirm a mortgage offer unless the ground rent is capped at £250 a year, which the freeholder is refusing to do. She was forced to remortgage the property at four times the mortgage rate she was previously on.
“With these toxic ground-rent clauses, I am left with a property that is effectively a worthless asset that I can no longer afford the mortgage payments on,” Potter said. “There’s a lack of properties in this country but tens of thousands of people who can’t sell because of the ground rent situation and there’s a massive knock-on effect.”
The costs of negotiating an extension rise dramatically when a lease falls below 80 years as “marriage value” is added to the calculation, reflecting the property’s value increase once the lease has been extended.
Ministers will now legislate to remove marriage value so they can sell and remortgage their properties.
The bill will also extend leaseholders’ “right to manage” (RTM) — to hire and fire property managers, or take control of the communal parts in multi-occupancy buildings.
Introduced in 2002, the right to manage does not apply to buildings where more than 25 per cent of the building comprises commercial units, such as shops or offices. Some leaseholders face extortionate service charges of up to £30,000 a year in these buildings, but are powerless to control them because their flat is on top of a hotel, for example.
The Leasehold Knowledge Partnership, a charity, claims residents that take over the running of their buildings have an average cost saving of 20 per cent.
John Greenway and his wife Jenny own two one-bedroom flats in the 64-flat development Eden Square, in Urmston, Greater Manchester. Now they live in Dubai and rent them out because they are struggling to sell due to the high costs associated with being leaseholders.They are unable to use RTM as the flats are on top of a shopping centre.
Greenway said: “We just want to be given a fighting chance to run our own affairs. If we had it, we would kick those idiots [the management company] out right away. It is not possible for [the residents] to run it any worse.”
Goves appears in construction enquire every couple of weeks.
Banning directors, sorting out cladding, moving forwards with judgements and getting the industry to move.
It has not gone unnoticed.
I’ve never really understood many aspects of leasehold. Our first flat was leasehold. The lease was something like 100 years (so the owner will never profit from it), there was zero ground rent/service charges (so the owner made nothing from it). We never had any contact with the guy from moving in to the day we sold the flat.
What was the benefit to this guy of owning the leasehold? It seemed utterly valueless under the described terms.
Only for them to be snapped up by landlords and rented back to you at eye watering rates. The alternative is living on the streets, vile serfs. Let’s be real, the idea of paying a share of your income, from your toil and labour, to somebody who does nothing to earn it themselves is about as feudalistic as it comes.