Leasehold – The Unfairly Christened ‘Bad Guy’ of Home Ownership?

On the Radio 4 Today programme on 25 July 2017 the business secretary Sajid Javid said the government could ban the sale of new build houses on long leases. The objective is to stop owners of new homes being caught up in the rising ground rent trap.

This announcement comes after many months of reports in the press about the scandal of new build flats and houses being sold on long leases which contain escalating ground rent clauses.  At first the ground rent appears acceptable but the buyer’s solicitors have missed that it is set to increase at an alarming rate over time. This results in the property becoming unsaleable.

The government’s proposal to intervene to protect owners of leasehold property is welcome, but is an outright ban on leasehold houses the answer? It is true that houses almost always can be sold as freehold.  But if they form part of a new build estate which comprises some flats and some houses, it can create complexity to have the flats sold on leases and the houses as freehold.

It must be remembered that the vast majority of new build flats will continue to be sold on long leases. In theory, developers could continue to impose unfair ground rents on leases of flats, so banning them only for new house sales does not cure the problem.

Surely, to promote good management of a new build estate it is desirable for the ownership structure to be simple, convenient and clear? Providing developers’ lawyers with flexibility to choose between leasehold and freehold ought to help them achieve this objective.

Leasehold has earned a bad name because it has been abused, but that does not mean leasehold is not fit for purpose. Unfair clauses can be hidden in any legal document, whether a lease or a freehold Transfer. Isn’t the answer to stamp out the abuse, rather than risk throwing the baby out with the bath water?

 

Mike Hansom is an Associate Solicitor in the Property Litigation department at BLB Solicitors, Bath.

mike.hansom@blbsolicitors.co.uk

Tel 01225 462871