New Build Leasehold Ban
13/09/2019
691
7 min read
The Government has instituted a new build leasehold houses ban which includes all Help To Buy properties (these are all new builds by definition). In totality, no developer can now legally sell you a leasehold house if the new lease came into effect on or after 22 December 2017.
In this article, we look at:
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What was/is the controversy with Leasehold Houses?
The concept of a leasehold house is a curious one. When you think of leasehold in the UK, you normally - and reasonably - think of flats where the two possible reasons for their being leasehold rather than freehold are that (apart from ground floor flats, but these don't own the area immediately above them) they're not free standing on their own plots of ground and also they normally involve at least some communal area which individual leaseholders don't own but for which they must pay a contribution towards upkeep.
In recent years - and particularly running alongside Government schemes such as the Help to Buy Equity Loan scheme - many houses have been sold as leasehold. This leasehold designation leaves open many additional ways for freeholders and/or developers to make money:
- Via selling lease extensions;
- Via selling the freehold titles to leasehold house owners;
- Via ground rent - ground rent doubling clauses have been a particular scandal; and
- Via writing restrictions into leases which can mean, for example, that leaseholders have to purchase a licence, which might cost £100s, from freeholders if they want to make minor alterations to their properties, something they'd never have to do as freeholders.
In fact developers and freeholders of leasehold houses have also been reported as selling on the freehold interests to speculators, who have then greatly increased the prices required to enfranchise.
It's been a huge embarrassment to the Government that a considerable number of large developers who've been in receipt of billions of pounds of funding for the Help to Buy Equity Loan scheme, including companies such as Persimmon, Barratt, Bellway and Wimpey, have ploughed huge sums into creating Help to Buy leasehold homes, particularly when news articles have simultaneously revealed the sky-high remuneration of some of their CEOs/Chief Executives, such as Jeff Fairburn of Persimmon, who famously was paid £53 million in 2017 and later received £100 million in bonuses.
Help to Buy was and is, of course, ultimately paid for by the taxpayer.
Therefore the Government's action, even though some have criticised how slow it has been to act, has been broadly welcomed by housing campaigners and the wider general public.
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What are the exact conditions of the ban?
In its own responses to its consultation called Implementing reforms to the leasehold system in England in June 2019, the Government stated:
[2.60] "…subject to any exemptions, following our proposed legislation coming into force, the ban on the granting of long leases for houses will apply to:
i. any land currently held only as freehold (i.e. with no leasehold also on the title) regardless of when the freehold title was acquired; and
ii. any leasehold land acquired from 22 December 2017 onwards."
[2.61] "The ban also will apply to 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."
[2.62] "The Government believes that houses developed on freehold land should be provided on a freehold basis."
[2.66] "We remain of the view that for the purposes of banning the unjustified use of leasehold houses, the key date should be completion, that is, the grant of the lease. One of the objectives for the retrospective element of the policy is to prevent developers from stockpiling leasehold land in advance of the legislation, in order to evade the ban and bring forward leasehold houses after the legislation. This objective would be undermined by any exemption to allow contracts to be exchanged before the legislation but completed after the ban comes into force."
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What are the penalties for creating leasehold houses?
According to the Government, in its responses to its consultation mentioned previously:
[2.14] "…if the lease is found to be contrary to the ban following a sale, the legislation will set out that the consumer will be entitled to zero cost enfranchisement as a means of redress."
No time limits
[2.15] "We propose there should be no time limit, in case disputes arise in the future well past the point of sale or for subsequent owners."
Civil Penalties
[2.16] "We will within the legislation be providing enabling powers to the Secretary of State to make regulations around civil penalties, with potential for higher penalties for repeat offenders, should they be required in future."
And if there are any pre-existing options to develop leasehold houses, these options are no longer valid – this is a blanket ban.
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Help to Buy scheme - are there any exceptions to the ban?
Yes.
According to the Government's own guidance:
Leasehold houses will no longer qualify for Help to Buy unless they meet they meet one of the following limited exceptional circumstances:
(a) The house was constructed or adapted on land which the Provider:
(i) acquired a long leasehold title on or before 21 December 2017; and
(ii) The Provider’s Title to the house is registered at HM Land Registry with title absolute; or
(b) The house was constructed on land disposed of by:
(i) the Crown Estate;
(ii) the National Trust; or
(iii) any other public body specified in writing by Homes England (at its discretion) on a Leasehold basis.
(c) The house was:
(i) constructed directly above another structure (such as an underground car park);
(ii) the existence of the other structure would prohibit the independent structural redevelopment of the house; and
(iii) Homes England have provided you with their prior written approval to this structural arrangement.
If any house does not meet any of the above exceptions they will not qualify as an "Eligible Dwelling" for Help to Buy.
"No Authority to Proceed"
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APPENDIX - What's the definition of a house?
Given that the Government's ban concerns leasehold houses, it had to decide on a definition of what a house is for this purpose in order to
In its consultation, the following excerpts specifically set these parameters:
1.13 point 2: "Houses" will be defined for the purpose of the ban as single dwellings, and self-contained buildings or parts of buildings (structurally detached or vertically divided)
2.22: In particular, we agree that the definition of a house should not include properties that are above or below (horizontally divided) another property or associated structure (e.g. such as an underground car park).
2.25: A "house" – for the purpose of the leasehold house ban will be based upon the following components of a definition:
a) building "built or erected structure with a significant degree of permanence, which can be said to change the physical character of the land";
b) single dwelling or unit of living accommodation (i.e. one house) – with or without appurtenant property; and
c) self-contained "building" of part of a "building":
i. a building is self-contained if it is structurally detached (stands alone, can be redeveloped independently);
ii. a part of a building is self-contained if it is vertically divided (does not sit above or below another structure); the structure of the building must be such that the part in question could be redeveloped independently of the remainder of the building (e.g. a house constructed above a communal underground car park would not be considered a house for the purpose of the ban).
Buying a Help to Buy property or a New Build?
You can trust our experienced property lawyers not only to complete your conveyancing as quickly and efficiently as possible, but also to protect your interests in their thorough checks on the property you're looking to buy, the contract of sale and all other related documents and information.
Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels - Help to Buy/New Build specialists
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