Government backs industry pledge to crack down on toxic leaseholds
The government has backed an industry pledge to stop leaseholders being trapped in unfair and costly deals.
More than 40 property developers and freeholders, including Taylor Wimpey and Barratt Homes, have signed the government-backed pledge, which commits them to doing away with onerous ‘doubling clauses’ that can result in ground rents soaring exponentially over a short period of time.
James Brokenshire, communities secretary, said: “Since becoming communities secretary, I have repeatedly made clear my ambition to end those exploitative and unfair leasehold arrangements that have no place in a modern housing market.
“The new industry pledge – signed by leading freeholders and property developers – will further support existing and future leaseholders by protecting them from onerous fees.
“It’s great news that leading names such as Taylor Wimpey and Barratt Developments have already signed up to the pledge, and I want to see others who have not yet signed up do the right thing.”
Mark Hayward, chief executive, NAEA Propertymark, added: “Today’s news is a victory for those stuck in leases with onerous ground rent payments, charges for making alterations to their properties, and ultimately, unable to sell their homes.
“Our Leasehold: A Life Sentence? report found that 45% of those who bought a leasehold house in the last ten years, didn’t realise they were only buying the lease until it was too late.
“As a result, 62% feel like they were mis-sold and the vast majority (93%) say they definitely wouldn’t buy another leasehold property.
“Buying a property is a huge undertaking and it should be an exciting time, but for thousands of homeowners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders.
“The government promised to ban the sale of new leasehold houses in 2017, but today’s pledge, backed by developers, is a triumph for those already tied into leases.
“It’s also positive that the retirement sector has been included in the government’s pledge. With event fees being reformed, older homeowners who have historically been stung with unfair charges when they become ill or die, will be treated fairly when they are at their most vulnerable.
“These measures are a huge step in the right direction towards fixing Britain’s broken housing market.”
The freeholders who have signed have committed to changing the terms of leases for those who are affected. Other industry bodies such as managing agents have also put their names down, vowing to act fairly and transparently in their dealings with leaseholders.
Ministers have also today announced plans to close the legal loopholes that force leaseholders to pay unjustified fees when they take their freeholders to court over pernicious service charges. This includes consultation with industry on whether these changes should apply to existing leases too.
Under current rules, leaseholders who wish to take their landlords to court to challenge exorbitant fees or unfair hikes in annual charges also run the risk of being forced to pay their landlord’s legal fees.
This applies even if the court rules in their favour – hitting some tenants with bills of tens of thousands of pounds.
Scrapping this loophole will reset the relationship between freeholders and leaseholders – stopping tenants being unfairly burdened with legal fees and ensuring they can access justice.
Heather Wheeler, housing minister, said: “We want to make sure we have a leasehold system where people are able to challenge exorbitant rates and high service charges. It is unacceptable that the burden of legal fees – potentially running into tens of thousands of pounds – is preventing people from seeking justice.
“The plans announced today will stop leaseholders from picking up the tab for unjustified legal costs – creating a housing market that truly works for everyone.”
Matthew Jupp, principal of mortgages policy at UK Finance, added: “This announcement is a positive step for customers that should deliver better outcomes for both existing and future leaseholders.
“Mortgage lenders share the government’s concern with poor practices in the leasehold market, including the rapid escalation of ground rents, and many have already taken action to help prevent unfair leasehold terms for new buyers.
“UK Finance will continue to work with the government, regulators and industry and to ensure the wider leasehold market works well for all.”