We are (slowly) entering Spring and for some, New Year’s resolutions may be a dim and distant memory.

One of the government’s New Year’s resolutions was to make proposals as to how to deal with what have been widely labelled as “feudal” practices in England.

This is the now common practice of landowners and developers selling houses on long leases under which ground rents are payable by the leaseholders for the length of the term. In some instances, those ground rents double every 10 or 25 years of the term, rendering the properties unsellable, with some lenders refusing mortgages for them.

It is anticipated that draft legislation may be brought before parliament in the next few months.

The key proposals are:

• There will be a ban on new build leasehold houses (save in limited circumstances)

• Ground rents under new residential leases of flats (and any houses still permitted to be sold on a leasehold basis) will be set at zero

• Proposals for developers to compensate those paying onerous ground rents under existing leasehold interests

• An improved process for leaseholders to buy their freehold or extend their leasehold interest

• Proposals to ensure that assured residential tenants are not subject to mandatory possession orders if they fail to pay small amounts of ground rent

• Improved abilities for freeholders to challenge the reasonableness of service charges where their freehold is part of a managed estate

It is unclear as to when the proposals will come into force, and how they will influence the growing housing crisis. Current schemes often offer a lucrative income for investors and developers and they will have to review the impact of the proposals on the structure of their developments. At the other end of the spectrum, no doubt the proposals will be welcomed by those facing the growing challenge of getting onto the housing ladder – but there will be thousands who are already bound to these agreements. In the absence of compensation proposals from developers, they face an uncertain future.

by Karen Taylor
Associate Partner (Litigation)