The issue of 'Leasehold New Builds' has again been in the news recently, we first reviewed this in February 'Concerns raised over leasehold properties' when various news outlets began reporting on the widely considered unfair practices of home builders making new build houses leasehold in order to make more money.
In order to understand how the home building companies, which include Taylor Wimpey and Bovis, have made extra profits from this scheme, the nature of ownership must be considered.
New build houses are generally sold as freehold properties. This means that the owner owns the property and the land on which it is built forever. It could be termed absolute ownership. In addition to freehold ownership, it is possible to own the leasehold of a property. This means that the owner has a right to occupy under specific conditions and with a defined term, i.e. for 1, 2 or even 999 years, but ultimately a landlord will own the freehold.
When a property is Leasehold, the landlord (often through a managing agent) generally charges the tenant for occupying the premises by various means. Most commonly, ground rent and service charge on a long lease.
The new leasehold houses have commonly been sold with a term of 999 years and provide that ground rent is to be paid to the landlord. The advantage for the house builder is that they can charge a high premium (i.e. purchase price) and subsequently charge ground rent on a yearly basis. Ground rent would generally be rather low or negligible on such a purchase, but not in these cases. By using a mechanism within the Lease, the ground rent has been set, for example, to double every couple of years for a number of years. In one example, this has meant that a £250.00 per year charge has ended up as high as £8,000.00 per year.
In addition to this hidden cost which has rendered many properties as 'unsellable' due to the huge future liability of ground rent, developers have been called out on selling the freehold of these properties to third parties. Because the houses are owned only in a leasehold capacity, the developers have made extra profits from the flogging of this to various buyers, including many offshore investment companies. The freehold is attractive to investors due to the future guarantee of income through the spiralling ground rents. These investors have then offered home owners to buy the freehold for inflated prices.
Recent figures suggest the as many as 100,000 properties have been affected by the practices described above. A recent government consultation on this issue has stated that they "recognises the challenges faced by existing leaseholders with 'onerous' ground rents". There certainly seems to be the political motivation for such change, as the Conservative and Unionist Manifesto 2017 commits to 'crack down on unfair practices in leasehold'.
It is hoped that concrete plans will be put forth, perhaps ensuring that terms within leases providing for ground rent to increases exponentially are deemed unfair and therefore unenforceable.
For further help with any Leasehold properties, or to buy and sell your property, our dedicated Property Solicitors are on hand to help. Contact us today on 01603 693500 or email us using the 'Make an enquiry' form. Appointments available at our Norwich, North Walsham, Brooke and Sheringham offices.