Leasehold vs Freehold
The leasehold property ‘trap’ has been featured in the press recently, with ITV news dubbing the situation ‘a national scandal’ due to the implications that leasehold property owners may face. Developers are increasingly selling new-build properties that would traditionally be sold freehold, as leasehold with ground rents and maintenance costs. While these costs seem small up front, they can be hiked up substantially over the course of the lease. Unlike the typical apartment Service Charge that covers the maintenance of communal areas, leasees see very little for their money.
But are housebuilders as guilty as they seem?
In many cases, the soaring ground rents occur after the land has been sold on, with more and more companies buying ground rents from the housebuilders. The Telegraph reported in November that once all the homes have been sold on a site, developers often sell the freehold onto someone else, often a financial entity such as a pension fund, a company, or even an individual. Naturally, the higher the ground rents, the more attractive the development is to a freehold buyer.
With the freehold potentially being sold two or three times over a decade, is it any wonder the prices begin to soar?
Housing minister, Gavin Barwell has warned that housebuilders may be forced to compensate buyers that have been ‘locked’ into unfair leaseholds, but the White Paper did not seem to echo this. Instead, the White Paper will seek to “promote fairness and transparency for the growing number of leaseholders” whilst consulting on a range of measures to ‘tackle all unfair and unreasonable abuses of leasehold’. When the practice isn’t illegal, we must question where the lines of fairness and unreasonable abuse are drawn, and just how can they be tackled?
Ultimately, it seems we are moving towards a time where leaseholds are becoming increasingly standard practice. What this means for the housing crisis remains to be seen and the White Paper seems to create more questions than it answers.