The Communities Secretary, James Brokenshire MP announced in a speech to the Chartered Institute of Housing conference in Manchester on 27 June 2019 that all new-build houses will be sold as freehold and there will be zero ground rent for new leases of longer than 21 years, as well as the development of a New Homes Ombudsman to protect the rights of homebuyers. This follows the government’s consultation in October 2018 on the implementation of reforms to leasehold.
As part of this initiative to reform leaseholds, the Secretary of State has also instructed Homes England to renegotiate Help to Buy contracts to explicitly rule out the selling of new leasehold houses, other than in exceptional circumstances. Further, where buyers are incorrectly sold a leasehold property, they will be able to obtain their freehold outright at no extra cost.
Flats can continue to be sold as leasehold but with ground rents on future leases reduced to zero, as opposed to an earlier proposal to cap them at a nominal £10 per year, down from a current average of about £300.
It was also announced that to make the home buying and selling process cheaper and quicker the government will limit freeholders and managing agents to 15 working days and a maximum fee of £200, to provide leaseholders with the information they need to sell their home.
While the reforms are welcomed by homeowners, there are evidently multiple drawbacks for developers. It will cause problems for developers who currently rely on payments from leases and may also have a knock-on effect on lenders. So not only will developers receive less income from annual ground rent fees, making it more difficult to pay off their loans, but the changes could restrict lending as many lenders will factor in the value of the freehold when calculating the overall gross developed value of a development site.
It is also unclear what the position will be for developers where there is a need to set up an estates service charge to pay for the maintenance of open spaces, play areas, communal buildings and facilities commonly associated with new housing developments. An exemption for such houses would be favourable but is unlikely given the purpose of the reforms. In this case, developers will need government guidance in respect of acceptable arrangements with buyers for the maintenance and associated costs of shared facilities, particularly as the legislation is likely to have a retrospective effect.
Stephensons' commercial property solicitors are highly experienced in the sale and lease of property on behalf of developers and landlords. We would be happy to discuss your property needs with you in preparation for a sale or lease. Call us for a no obligation discussion on 0175 321 6399.