The fight to improve the rights of leaseholders in the UK has taken a rather confusing step. The Labour Party has today made a big announcement about a proposed ban on leaseholds on new build homes. While this will be music to the ears of future homeowners, is it not simply reiterating the views of the current Conservative government?
There is no doubt that the current system in the UK is not working. Many leaseholders are now committed to ever increasing ground rents paid to those who own the freehold. There have been many examples of home owners being “exploited” such as:-
• An £8000 a year ground rent which would increase to £8 million a year in 95 years
• Right to buy leaseholders hit with a £151,000 bill each for the regeneration of the estate where their houses are situated
• Leasehold residents charged £72,000 for “part works” which only cost £21,500 in full
There are also serious concerns about the contract conditions attached to many new build properties which together with the leasehold/freehold situation, and ever-growing ground rents, have made some properties a poisoned chalice. Many homeowners are also concerned about leaving property in there will which will potentially leave beneficiaries with a huge ongoing liability.
Current government policy
There is some confusion regarding the current government policy, having already announced it will “axe leaseholds on all new build houses” – but there is no definitive start date as yet. It may be that the Labour party is looking to put pressure on the UK government to confirm a start date? Alternatively, why would the opposition party announce what is to all intents and purposes the same policy as that announced by the current Conservative government?
Interestingly, the Labour Party is also looking to give leaseholders the option to acquire the freehold on their homes for just 1% of the property’s value. This would be a significant reduction on the current system and allow many homeowners to address the ongoing ground rent problem. In practice the average freehold now costs around £10,000 but this would fall to around £2500 under the Labour Party’s announcement today.
There is also a suggestion that ground rents would be capped at 0.1% of a property’s value up to a maximum of £250 a year. This would be a welcome change for homeowners!
While the UK government has already announced plans to eliminate ground rents on leasehold flats this is another potential problem going forward. In order to acquire the freehold this would require all flat leaseholders in a block to undertake a group purchase. The alternative is that one or more leaseholders acquire the freehold and charge others ground rent. Surely this would be a case of “out of the frying pan and into the fire”?
It is tempting to suggest that the Labour Party is issuing policy statements which it may never fulfil. However, when it comes to leasehold, freehold and ground rents there is certainly a need to make changes as soon as possible. Interestingly, the Conservative government has already announced similar policies so it is safe to say that, for once, both parties are now singing from the same hymn book. But who will deliver?