Law Commission offers radical ray of light for leaseholders

Millions of people could benefit from a proposal that could allow them to buy freeholds for just 10 times their ground rent. But will ministers face down wealthy landowners?

James Moore
Chief Business Commentator
Thursday 19 July 2018 17:00 BST
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New homes: The Government has banned the sale of new houses on a leasehold basis
New homes: The Government has banned the sale of new houses on a leasehold basis (PA)

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Louise Thomas

Louise Thomas

Editor

There might be some light at the end of the tunnel for people who “own” leasehold properties and end up getting skewered as a result, courtesy of some radical proposals put forward by the Law Commission.

The Government’s best guess is that there are around 4.2m such dwellings in England, just under one fifth of the total housing stock. About half of them are “owned” by their occupiers.

Except, of course, that they aren’t. The leaseholder might own the property, but they don’t own the land on which it is built.

The latter is typically in the possession of wealthy individuals or corporations, which earn a pretty penny from charging ground rents without having to do anything for the money.

Under the current system, it can cost a small fortune to either extend a lease or buy a freehold, a process governed by complex and sometimes contradictory legislation, with different rules in place for those owning houses and those owning flats.

However, having banned the sale of new houses on a leasehold basis, in the wake of the scandal created by ground rent escalator clauses that left some homeowners with properties that were impossible to sell on, the Government turned its attention to those already in this type of arrangement.

In doing so, the then Communities Secretary Sajid Javid, now the occupant of the Home Office, demonstrated that it is possible to hold ministerial office while actually doing something for your fellow citizens that doesn’t involve dumping upon them from a very great height.

The Commission was asked to be “fair” to both sides, but its proposals, that will go out to consultation, are really quite radical. And by radical, I mean good, in that they aim to significantly reduce the costs incurred by homeowners.

By far its best idea would be to allow the latter to buy out their leases for no more than 10 times the value of what they have to pay in ground rent.

The average is a shade under £400 annually, putting the average cost at just under £4,000.

Under the current system, lessees can sometimes pay ten times that. Those living in houses with less than 80 years left on a lease can find themselves particularly badly treated. They only have the right to renew a lease once, and then only for fifty years. If they try to buy out the freehold they even have to pay landlords’ legal costs.

With a simple formula that applies to everyone, there would be no need for anyone to hire a lawyer.

A secondary, less good, option would be to introduce a simpler version of the current system, removing some of the elements that hurt tenants.

There’s still a way to go on this one, and while the Government does accept two thirds of the Commission’s recommendations, it should be remembered that these proposals could make some very rich people very cross.

That’s the potential stumbling block. Much now depends on ministers’ desire to do the right thing. Oh. Right.

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