An influential legal authority has urged the government to be cautious about prohibiting the sale of new-built homes on leasehold. The Civil Justice Council, an advisory body chaired by master of the rolls Sir Terence Etherton, said the prohibition of leasehold sales should be a ‘last resort’ and it urged the government to find other ways to tackle abuses of the system.
It was responding to proposals set out by the communities secretary, Sajid Javid, to address growing concern over leaseholders being hit with crippling ground rent increases. The government wants to set ground rents to zero levels, halting the significant increases of recent years. It also proposes to change the rules on Help to Buy equity loans so the scheme is applied only to new build homes on ‘acceptable terms’.
The CJC said it supported steps to increase the protection of homebuyers and help existing leaseholders. It backed restricting Help to Buy to properties where the ground rent was nominal.
On ground rent increases, the response endorses linking rises to the Retail Price Index, or setting the maximum rent for new build properties at 0.1% of the property value.
‘There is no simple answer to this question,’ adds the response. ‘If leasehold properties are sold at a freehold value, then ground rents should stand at a peppercorn or nominal rate. However, if the price has been significantly reduced to reflect its leasehold status, there is nothing in principle to stop a developer charging a ground rent provided that this is not open to abuse and the property does not become unsaleable in the future.’
The CJC pointed out that if the proposed ban goes ahead, developers may attempt to recoup the income they lose by raising other charges .
The response supports reviewing existing legislation to encourage greater use of commonhold tenures, offering long leaseholders first refusal when a freeholder wishes to sell, removing the two-year moratorium on leaseholders buying the freehold, and greater regulation of management tenants. It also urges ministers to consider how the proposals affect Wales, where housing is a devolved function.
Last week a report stated that potential negligence claims against solicitors over ground rent charges present a major risk to law firms in the next year.
Defendant firm BLM reported it had seen more than 400 potential claims in the past 12 months and expects that number to grow significantly.