There was air punching and shouts of “hurrah” when the Government announced its intention to hurry through long-awaited reforms to the leasehold system.
But the complex plans have led to some confusion, which is why we asked Yorkshire property developer Stewart Moxon of Hopton Build for help in making sense of the changes. Stewart is a long-time campaigner for leasehold reform and has also advised the Government on the use of commonhold after he resurrected it with five new-build apartments in Liversedge.
The impetus for the Government’s new legislation, which should be enacted in this session of parliament, was the relatively recent practice of large developers selling new-build homes as leasehold property with high annual or periodic doubling ground rents and unfair terms and conditions attached. The freeholds were often sold on to speculators enabling builders to profit twice.
“What many people don’t understand is that if they have bought a leasehold property they do not own it. Instead they are effectively a tenant and have the right to occupy it for a set number of years and have to pay ground rent. This is not a problem for those who have old-style leases for 900 years without onerous charges. It is the more recent, shorter leases with large costs that have forced change,” says Stewart.
Here is what Housing Secretary Robert Jenrick is planning:
Leaseholders of residential property i.e. houses and flats, will be given the right to extend their lease by a maximum term of 990 years at zero ground rent. Under the current law, leaseholders of houses can only extend their lease once for 50 years with a ground rent and leaseholders of flats can extend as often as they wish at a zero ground rent for 90 years. At the moment, the freeholders can increase the amount of ground rent paid with little or no extra benefits for those forced to pay it. Leaseholders who opt to extend the lease to up to 990 years will have to pay a one-off charge to the freeholder. This amount will be set by the government, which will produce an online calculator to make it easy for leaseholders to find out how much it will cost them to extend their lease or buy their freehold.
Housing secretary Robert Jenrick says that there will be savings of between £8,000 and £9,000 for the average leaseholder buying their freehold. Restricting ground rents to zero for new leases will also now apply to all new retirement properties but to mitigate potential impact on developers who are part way through construction, this will be deferred for 12 months after the new legislation is passed. The reforms, together with the existing ban on using the Help to Buy scheme on leasehold houses, should ensure that all future new build houses will be freehold.
Stewart Moxon’s advice to those with historic or unrestrictive 900 year plus leases is that buying the freehold is unlikely to be worthwhile. He says: “It may be cheaper to just continue with any annual peppercorn ground rent but check the government calculator.”
For others, those primarily with properties built since the millennium, who were led to believe they were buying the ownership a house or apartment, extending the lease makes sense and is, in some cases, vital if the lease has 80 years or less to run.
He also suggests it is a good idea for leaseholders of an apartment block or housing development with common areas to get together and buy the freehold if the cost is reasonable. “You can then elect your own management company, convert to commonhold and attain individual freehold ownership of the homes, thereby cutting costs.”
The Government is establishing a Commonhold Council that will prepare homeowners and the market for the widespread take-up of commonhold on new apartment blocks and on new-build housing estates that have communal areas and facilities. roads.
Stewart Moxon has advised and continues to liaise with the Parliamentary Committee for Leasehold and Commonhold Reform after building the first commonhold apartment development in England in decades. The flats are at Park View, Liversedge, with one apartment left for sale at £139,500.
He says: “I’d read about the leasehold scandal and had experienced issues with a leasehold apartment I bought. The management charges were a rip-off plus if you get into arrears with management fees the freeholder can repossess your home. I wanted a more honest and fair way of ownership and The Law Commission advised me on commonhold, which means you own your own home freehold and share ownership of communal areas. You control how much to spend on common area management and what to save for future needs.”