Housebuilders have come to see selling property, while retaining the freehold title to their houses, as a major income stream for them in the future, and a way of retaining control.

But it seems their abuse of this system has brought the whole leasehold edifice crashing down around them. The big four builders have come under fire after a major investigation by The Competition and Markets Authority.

The competition watchdog investigation found what everyone expected was happening; it unearthed “troubling evidence” that innocent buyers, many of them young and inexperienced first time buyers, were duped into taking on leaseholds when their homes were mis-sold to them.

Leasehold actually works best when applied to blocks of flats, where a single freeholder has oversight over the management of the whole bock and prevents neglect and devaluation by individual leaseholders in the block. Ground rents and service charges are applied and a managing agent is usually appointed to manage the block. Providing this is done professionally and fairly the system can work well, but even so, it still puts leaseholders at the mercy of an unscrupulous freeholder if the freehold interest is sold on or a dodgy managing agent is appointed.

There is really no reason why an individual property needs to be sold with only a leasehold interest, except that this is to the advantage of the housebuilder, the freeholder, leaving the company with an income stream and an asset – the freehold – to sell on.

By tying up their properties into leasehold agreements, with their tenants on exorbitant terms, it leaves something like 100,000 families across the country trapped in unsaleable homes. This is due to onerous and restrictive terms in their leasehold contracts. To make matters even worse, some leaseholders in blocks of high rise flats are facing enormous costs to replace dangerous fire-risk cladding.

The Competition and Markets Authority has said it has found evidence that these home-buyer families were not given enough information – usually they had no choice but to use a solicitor introduced to them by the housebuilder – and they were just not given enough information about what they were signing up to. In some cases the home buyers were even blatantly lied to when asking direct questions about their leasehold contracts.

Under the law as it stands, many leaseholders face high and increasing ground rents, charges that the freeholders can increase over the years almost add infinitum, with little or no benefit to those paying the bills. It makes selling a property a leasehold property with these conditions attached nightmare or impossible, as any purchaser will balk at the terms of the lease.

The changes now to be introduced by housing minister Robert Jenrick will mean that any leaseholder who opts to extend their lease on their home will no longer pay any ground rent to the freeholder. For some leaseholders with the worst case leases, these changes could save them thousands, even tens of thousands of pounds.

Mr Jenrick says:

“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

“We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.

“These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”

Currently, leaseholders of houses can only extend their lease once, for a maximum of 50 years and with a ground rent liability. Flats are different, as they can extend as often as they wish given the costs involved, but at a zero or ‘peppercorn’ ground rent for 90 years. 

The changes now being brought in will mean that both houses and flat leaseholders will be in a position to extend their lease to a new standard 990 years, and there will be no ground rent to pay.

The complicated system of calculating “marriage values”, which often produces exorbitant costs when extending, will be scrapped in favour of a fairer system and an online calculator will be introduced to make it easier and simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease. A cap is also to be introduced on the ground rents payable when a leaseholder opts to extend the lease or buy the freehold. These measures are also to apply to retirement leasehold properties.

As a result of these changes, purchasers of new homes should in theory have the same rights as other homeowners and will be protected from the previously common rip-off practices.

Mark Hayward, chief policy adviser at NAEA Propertymark has said:

“We have campaigned for years for changes to the leasehold system and event fees on retirement homes.

“The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses.

“Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”

Legislation to enable the changes is to be brought forward in the upcoming session of Parliament, to set future ground rents to zero.

Housebuilder Barratt has this week announced that it will no longer impose ground rents on the buyers of new flats. Also, all its leases will in future be for 999 years, commonly known as virtual freeholds, which will do away with the need for leaseholders to extend their leases during their lifetimes. This should do a lot to improve financial security for flat buyers, though it will not alleviate the stress and worry suffered by flat owners lumbered with dangerous cladding.

Meanwhile, the four of the country’s biggest housing developers could face court action after the competition watchdog found evidence they misled leasehold buyers for years.

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