Over the last few years there has been a growing trend with new properties being sold as leasehold as opposed to freehold. This means that the property owner is able to charge an array of fees such as ground rents and “permission fees” to make adjustments to the property. Many people have failed to recognise the true dangers of some modern day ground rent arrangements which double after a set period and then double again, again – you get the picture.
How bad is the situation?
We are in a position where many homeowners have been unable to sell their properties because of the ground rent and additional charges connected to the leasehold. Traditionally freehold owners charged “peppercorn” ground rent which was minimal. However, the trend of late has been towards relatively low ground rents in the beginning then increasing them as the years go on.
The situation has become so bad for some homeowners that literally leaving their property to their children has become something of a poisoned chalice. As a consequence, many people have literally become a prisoner in their own home with the inevitable result that their lease will eventually run out and the property returned to the freeholder.
What is the government doing about it?
It would appear that the UK government has already taken legal advice regarding the removal of onerous and unfair ground rents in existing leases. The subject of tackling “unfair” fees in future leases is more straightforward and we should hear further details in the short to medium term.
The idea seems to be that ground rent should be capped at 0.1% of the property’s value with a maximum £250 per year. There have even been suggestions that the current trend in ground rents could be classed as “mis-selling” although this would appear to be a baseless threat in all honesty. All of, the details regarding future ground rent increases and associated permission fees are all listed in leasehold agreements. Whether they are fair or not is irrelevant, until the government make changes, but this does emphasise the need to take legal advice prior to acquiring your new property.
Feedback from leaseholders
You do not have to look too far to find evidence that many leaseholders believe there were possibly mis-sold their property (62%) with a staggering 94% regretting the leasehold purchase route. This would seem to indicate a lack of understanding and education with regards to leasehold properties and the potential ground rent/permission fee increases going forward. While ignorance is not a valid argument in the eyes of the law, the UK government appears determined to make changes as soon as possible.
If you take a step back and look at the situation from a distance, it is difficult to comprehend why ground rents need to double every few years and permission fees charged for relatively minor changes. However, it has probably created a very liquid market in freehold assets as this really is the gift which keeps on giving.
It is good to finally see the UK government doing something about the growing threat of increased ground rent and the fact that many people are now unable to sell their property. Quite what can be done from a legal standpoint remains to be seen but housebuilder would be advised not to discount these threats from the government. They certainly seem determined to find a way to unpick what many see as unfair agreements.