Leaseholds to Stay for the Meantime
Leaseholding, where the property owner must pay for communal charges and upkeep, has been in dispute for some time. The government has previously expressed desire to get rid of leaseholds altogether, being described as unfair and outdated. However, they are not going to be scrapped this year, but will instead be the focus of several new laws to help leaseholders a little bit more.
Housing Secretary Michael Gove has long conveyed his dislike of leaseholds and previously promised to remove them altogether. Despite new laws coming into effect instead, he still maintains his desire to abolish them, although there is no indication that the new laws will make this happen.
Two of the main issues facing leaseholders are that they only own their home for a set amount of time and that they are subject to increases in ground rent to whoever owns the freehold. In some situations, residents can become stuck in their property after ground rent increases, being unable to sell and trapped in spiralling costs they are legally obligated to pay.
While whoever owns the freehold is permitted to raise ground rent, in accordance with the leasehold agreement, some contracts allow this to be backdated. This could hit residents in leasehold properties with bills amounting to hundreds of pounds. Alongside service charges, for upkeep of the building and communal areas, which can easily increase alongside inflation over the years, leasehold properties can easily become financial traps for residents.
The new leasehold laws, coming in autumn, are expected to focus on tenant protection against ground rents and legal fees. It will also help with security and support against freeholders. As around 20% of homes in the UK are leasehold, spiralling costs are a potential issue for millions of Britons. Not only are ground rents and service charges necessary to pay the freeholder, but mortgages are also of high concern for residents. In cases where ground rent doubles every few years, this can quickly become unaffordable.
Currently, there are no systems ready to replace leaseholds, but it’s expected that the new legislation will lay the groundwork for a better commonhold system to come into effect. This simply means that all occupants of a building, such as a group of flats, become responsible for the entire building – including its maintenance – without having to worry about an expiring lease.
Despite leaseholds only being available for a limited amount of time, extending the lease or buying the freehold can be a complicated and legally draining process. In part, the new laws coming into effect will make the process easier and more cost-effective, but that’s small comfort to those crippled by existing costs.
In 2022, the government abolished most of the ground rents in new leasehold properties, but this was only for any after June, and only for England and Wales. In Scotland, the leasehold concept does not exist. Campaigners sharing Michael Gove’s dream of abolishing leaseholds will be disappointed, but the system cannot be replaced overnight, which is why further reform is coming.