A few weeks ago, the government announced an industry pledge to “crack down on toxic leasehold deals”. Signatories of the pledge promise to do away with onerous ground-rent clauses within leasehold agreements.
So far, more than 40 leading property developers and freeholders have signed the government-backed pledge, including housebuilders Taylor Wimpey, Bovis, Redrow and Barratt Homes
For the past few years, the government has been under a lot of pressure to tackle the problem of unfair leasehold agreements. Originally brought in to allow for the centralised upkeep of communal areas, leasehold ownership is usually used in blocks on flats owned by one freeholder. Each leaseholder pays a service charge for this upkeep. But the controversy has come from the fact that developers started selling new-build houses on a leasehold basis.
It was controversial because houses usually don’t have a need for communal upkeep, so these leaseholds were then charging owners ground-rents, which often included doubling ground-rent clauses and extra charges if the owners made any alterations to their properties.
Then, when these homeowners tried to buy their freeholders would often find it had been sold onto a professional investor who had marked it up hugely, making it unaffordable.
There were hundreds of horror stories about people who had, effectively become trapped in their homes because they were unable to find a buyer for the property due to the issues with the leaseholds and there was a lot of pressure put on the movement to do something about it.
Back in December 2017, Sajid Javid, the then Communities Secretary announced a ban on leaseholds for the majority of new build houses in England in hope of creating a fairer system, saying that it is “unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.”
But no outright ban has happened, instead, the government has announced this pledge, which places public pressure on housebuilders and freeholders to make the situation better for homeowners.
As part of the pledge, the signatories have to find any leases in their portfolios where the ground rent doubles more frequently than once every 20 years, contact them and offer to change the arrangement to one linked to the retail price index (RPI).
They also have to help any leaseholders that approach them with issues around ground rents doubling and offer to amend those to one linked to RPI.
The pledge also requires signatories to make it ‘less uncomplicated, transparent and fair” for leaseholders to acquire the freehold on their home.
Those who have signed the pledge also promise not to have any future lease agreement where ground rent doubles more frequently than every 20 years.
This is a step in the right direction, but it is not law, and while 40 developers have signed up, there are many that haven’t, and it is just a pledge. It is not binding. And it does not get rid of leasehold, just makes them more affordable.
But unless something is done to make it law, we could see a real divide in the housing market, where new-build freehold houses a lot more desirable than similar existing leasehold properties, making it much harder for those who do have to pay ground rent – even if it is a fairer, more manageable cost – to sell their homes.