Written statement on Leasehold and commonhold reform

Sajid Javid (Secretary of State for Communities and Local Government): The Government’s Housing White Paper, ‘Fixing our broken housing market’ set out our commitment to promoting fairness and transparency for the growing number of leaseholders.

Leasehold has been part of the UK’s housing landscape for generations, usually put to sensible use in buildings with shared spaces and infrastructure, such as blocks of flats. But far too many new houses are being built and sold in this way. The proportion of new build houses that are leasehold has doubled over the past twenty years, accounting for 15 per cent of all new build house sales today. In some parts of the country, it is increasingly difficult to purchase a new build home on any other basis.

Ground rents on many of these types of properties have also risen from historically small sums to hundreds of pounds per year. In some cases ground rent terms can spiral into very significant sums – literally thousands of pounds. Leasehold should not be a means of extracting ever more cash from the pockets of already over stretched house buyers.

The Government published a consultation over the Summer, ‘Tackling unfair practices in the leasehold market’, which ran for 8 weeks from 25 July to 19 September. I am very grateful to all those who have participated in this consultation and have provided evidence, including Members of this House and the All-Party Parliamentary Group on Leasehold and Commonhold.

The consultation received an overwhelming response with over 6,000 replies, and the vast majority in favour of widespread reform. It is telling that people with experience of buying and living in a leasehold property are the keenest proponents for change.

It is clear from the responses that many purchasers did not make an active or informed choice to buy a leasehold house, and were not always aware of the medium and long-term costs associated with this. Far too many reported being surprised to find that their home had been sold on to a third party investor, with the cost of buying the freehold having risen considerably – sometimes running into tens of thousands of pounds.

We also heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer. Some of these people have not been able to access redress, and do not know where to turn for support.

It is clear that the system as it stands is not working in consumers’ best interests. Even most developers and institutional investors on freehold accept that, in the majority of cases, use of leasehold for new build houses is entirely unjustified.

This has got to stop. As I have previously stated, as a Government committed to building a fairer society, I don’t see how we can look the other way while these practically feudal practices persist.

Therefore, today I can announce that alongside publishing a summary of responses to the Summer consultation, this Government is setting out a package of measures to crackdown on unfair leasehold practices. This includes:

• introducing legislation to prohibit the development of new build leasehold houses, other than in exceptional circumstances;

• restricting ground rents in newly established leases of houses and flats to a peppercorn (zero financial value);

• addressing loopholes in the law to improve transparency and fairness for leaseholders and freeholders; and

• working with the Law Commission to support existing leaseholders – including making buying a freehold or extending a lease easier, faster, fairer and cheaper; reinvigorating commonhold to provide greater choice for consumers; and to take forward the work in our recent call for evidence on regulating managing agents (‘Protecting consumers in the letting and managing agent market: a call for evidence’).

I also want to ensure there is appropriate support for existing leaseholders with onerous ground rent terms. We will work with the ombudsmen and Trading Standards to provide leaseholders with comprehensive information on the various routes to redress. But I also want to see developers and investors going further with their compensation schemes. I want to see this support extended to all those with onerous ground rents, including second hand buyers, and for customers to be proactively contacted.

Given the Government’s position, we do not think it is appropriate for the Help to Buy Equity Loan scheme to support the sale of leasehold houses. It is not possible to impose new requirements on developers under existing contracts, but we expect them to work with us to take forward this change ahead of legislation.

I can announce that today I have written to all developers to ask them to stop using Help to Buy equity loans for the purchase of leasehold houses; to encourage them to take early steps to limit ground rents; and to ask that those who have customers with onerous ground rent terms provide the necessary redress as soon as possible. I will be keeping a close eye on progress and will explore measures that could be pursued to take action if necessary.

This is a highly complex area covering hundreds of pages of legislation and multiple Acts of Parliament. That is why we will work closely with the Law Commission as part of their 13th Programme of Law reform. We will prioritise making the process of buying a freehold easier, to support existing leasehold house owners, and will seek to bring forward solutions by Summer recess 2018. This will be followed by bringing forward new legislation when Parliamentary time allows.

In bringing forward legislation we will continue to work with stakeholders to ensure the best outcome for consumers. We want to ensure that our plans do not have an adverse impact on supply and will work with the sector to consider the case for exemptions. Where land is currently subject to a lease, developers will continue to be able to build and sell leasehold houses on that land. However, the Government will ensure that future legislation to ban the sale of leasehold houses applies to land that is not subject to an existing lease at the date of publication of this statement. We will consider the case for exemptions to the policy and its retrospective application, in particular to mitigate any undue unfairness. We will also make sure that where leasehold is necessary it is delivered on terms that are favourable to the homeowner.

It is important that we get the detail right. We are committed to ensuring that our reforms deliver a fairer and more transparent system for both existing and future homeowners, and to stamping out the abuses of the leasehold system which have existed to date.