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No quick fix for a broken housing market – government consults on leasehold reform

We blogged previously about the government’s proposed reforms banning the granting of new residential long leases of houses and setting ground rents at a notional figure. The government has now published its consultation on how to implement these proposals and also proposals to make charges paid by freeholders for maintenance of communal parts fairer and more transparent. Finally, proposals are included to set fixed time frames and maximum fees for the provision of leasehold information. The full consultation can be found here.

KEY POINTS

Implementing the ban on the unjustified use of leasehold for new build houses

  • Once the legislation is in force, it will not be permissible to apply to the Land Registry to register a residential long lease (over 21 years) of a house granted or assigned in circumstances caught by the ban.
  • The consultation asks for views on what remedies should be available to home owners who have been caught out by the ban – including transferring the freehold to the homeowner – and the practicalities of enforcing this. The consultation seeks input on further means of implementing the ban on new residential long leases.
  • A workable definition of “house” will be crucial for the legislation to be effective and the consultation invites views on the type of arrangements and structures which should or should not be considered a “house”.

Exemptions to the ban on new residential long leases of houses

  • The government believes shared ownership homes, community led housing (Community Land Trusts, cooperatives and cohousing schemes) and inalienable National Trust land and excepted sites on Crown land are possible exemptions to the ban.
  • The consultation asks respondents for other suggested exemptions.

Retrospective application of the ban

The consultation sets out the government’s proposals for the retrospective application of the ban on the granting of leasehold houses, namely:

  • any leasehold land owned on or before 21 December 2017 will not be caught by the ban but it is not clear how this applies to the ban on assignments referred to below
  • it will be possible to grant leases of houses before the new legislation takes effect
  • once the legislation is in force, the ban of granting leases of houses will apply to:

any freehold land at any time; and

any leasehold land acquired on or after 22 December 2017

  • The ban will catch assignments of leasehold land once the legislation is in force if a house or houses have been developed on that land after the legislation comes into force.

The government’s belief is that houses developed on freehold land should be provided on a freehold basis. It also states that the proposed restrictions should be placed on new leases of land granted or assigned from 22 December 2017 so that land is not acquired to circumvent the proposed ban. How these retrospective provisions will work is not clear and responses to the consultation will no doubt call for additional clarity, particularly in relation to existing development agreements and leasehold land where it will be impossible to develop under a freehold structure. There is also a concern that a one size fits all approach could prevent the future use of leasehold structures commonly used on complex regeneration projects.

Implementing the cap on future ground rents

  • Whilst the government wants to set ground rents at a nominal value on all new leasehold residential properties, it is also keen to clarify what “nominal” means. The proposed cap on future ground rents is therefore £10 (the figure being drawn from the Housing Act 1985 applying to council tenants and Right to Buy). The government asks whether there are justifiable reasons why ground rents on newly created leases should not be capped at £10, but instead at a different value. It should be noted that this is a cap so developers could choose peppercorn rents.
  • The consultation also seeks views on the exemptions to the cap, including:

community led housing (where ground rent forms the sole income for not for profit organisations)

shared ownership, but only where ground rent is used to buy out a landlord’s retained equity

retirement properties where community facilities costs are recovered through ground rents rather than service charges. Capping such ground rents could impact the affordability of such properties for an increasingly elderly population

mixed use leases (such as a lease of a building comprising of a shop with a self-contained flat above), although a further sub-lease of the flat for residential use would be subject to the cap

  • The proposed date for the cap to come into force will be three months after commencement of the legislation.
  • As with the ban on new long leases of houses, it will not be permissible to apply to the Land Registry to register a newly granted long lease with a ground rent in excess of the cap.

When to respond by

The consultation will close at midnight on 26 November 2018.