Leasehold: The Government's proposed changes
The Government has now issued a response to its consultation on tackling unfair practices in the leasehold market. We submitted a response to the initial consultation, on behalf of ourselves and a number of housing providers. We are delighted that a number of our suggestions have been taken on board by the Government.
The Government’s response to the consultation has provided details of legislation it proposes to introduce, and which will have an impact upon housing providers. For example, ground rents for new long leases will be reduced to zero which may have an impact on financial modelling for a number of landlords.
What you need to know
The key points arising from the Government’s response are as follows:
- Legislation will be passed, preventing new residential long leases being granted on houses – for both new build and existing freehold houses. There will be limited exemptions to this, including shared ownership leases.
- In advance of legislation, the Government will be discouraging the use of Help to Buy equity loans for the purchase of leasehold houses.
- For new long leases of both houses and flats, legislation will be introduced to set ground rents at a peppercorn (i.e. zero).
- Future legislation will ensure that long leaseholders are not subject to Ground 8 possession orders for ground rent arrears. Landlords will only be able to rely upon the forfeiture of lease process where the shared owner falls into rent arrears.
- Freeholders on estates are to get the same rights as leaseholders to challenge estates service charges.
You can read the Government’s full response here
What you should be doing now
There are several steps to take:
- Review any proposals to grant new leases of houses, except shared ownership, to establish whether this will still be permissible in the future. If not, consider what changes are needed to the tenure proposals.
- Update your financial modelling to include zero ground rent for any new developments. Consider the impact of recovery of costs through service charges, or higher sale prices, instead.
- Consider whether any of your existing leaseholders are subject to onerous ground rents and review the ability to offer any compensation.
- Review your rent arrears enforcement policy and procedures insofar as they apply to your shared owners and other long leaseholders.
Likely further changes
The Government has indicated that they will legislate to address the above points. But they have said that “our work will not stop here”.
They also intend to look at:
- regulation of managing agents;
- allowing consumers greater say over who their agent is;
- reducing ground rents under existing leases, if landlords do not take sufficient proactive steps to contact leaseholders with onerous ground rents and voluntarily compensate them;
- simplifying and reducing the costs involved in leasehold sales;
- simplifying and reducing the costs involved in residential lease extensions;
- simplifying and reducing the costs involved in enfranchisement;
- introducing a minimum lease term for new long leases of flats. This is to protect leaseholders from added costs where their leases fall under 80 years; and
- reinvigorating commonhold.
How Capsticks can help
Our expert teams can help you to make any necessary changes to your development proposals and to your leases.
Our head of advisory services, Chris Grose will be running a leasehold service charges project. Which will consist of a combination of workshops, tailored consultancy, legal advice and good practice sharing. See the full details and register to attend here.