Corporate Law

Leasehold Properties – Making Sure You’re On Solid Ground

Houses from above

Emanating from its epicentre in South Wales and stretching as far as the Midlands and the North West of England, the UK was shaken by a rare earthquake recently. Without wanting to tempt fate, British earthquakes tend to be seldom in occurrence and relatively tame in their impact. Anyone who’s been to the west coast of the United States or Japan and seen just how deeply earthquake prevention is sunk into the strata of their society knows how lightly we get off over here.

That said, the trusty terra firma is one of the few things we think we can rely on in our lives to stay put and stay predictable, so there’s something deeply unsettling about feeling the ground under our feet starting to shift, no matter how timid the tremor.

Rocketing Ground Rent

I was reflecting on this when my thoughts led to the recent ground rent scandal that has rocked the new leasehold property market. Owners of leasehold properties know that the ground under their feet, as solid as it usually is, is nevertheless owned by someone else. They rent it from a freeholder, often for a relatively small amount. However, over the last decade there have been some unpleasant aftershocks for recent buyers of new leasehold houses, as developers have ushered in contracts allowing ground rent to double every 10 years from an average starting point of between £200-£400 per year.

This may not sound like much, but it can escalate quickly. The Ministry of Housing Communities and Local Government (MHCLG) cited an example of a family home that is now unsellable because the ground rent is expected to hit £10,000 per year by 2060. Other aspects of these contracts have become similarly draconian in relation to any changes the owners might like to make to their properties – which have to be approved by the freeholder – with instances of owners needing to pay thousands of pounds to make even minor alterations. Property owners could buy the freehold themselves but there has also been a dramatic escalation in their cost. The Government provided an example of a homeowner who was originally told that buying the lease would cost £2,000 but who was surprised to find on enquiry that the bill actually came to £40,000.

Government Crackdown

At the end of 2017, the Government announced a series of measures designed to crack down on what they called ‘unfair and abusive practices within the leasehold system’. These included:

  • A ban on leaseholds for almost all new build houses
  • Making sure that ground rents on new long leases are set at zero
  • Making the process of purchasing a freehold or extending a lease easier, faster and cheaper
  • Providing leaseholders with clear support on challenging the situation

This is of course good news going forward for future buyers but as the last measure in the list indicates, there are many homeowners already trapped in these contracts. This begs the question, where were the original conveyancing solicitors when they were conducting the purchase? According to an article in the Guardian last year, it was estimated that ‘seven out of ten buyers of recently built leasehold homes used the conveyancing solicitor recommended by the developer’. The solicitors involved in some of these cases are facing legal action on the grounds of professional negligence.

Firm Footing

It’s worth making yourself aware of the different ways your lease could deal with ground rent. It might stay the same through the term of the lease, or increase after a certain number of years, or according to a formula. If your lease has been extended, you normally won’t have to pay any more ground rent. You don’t have to pay ground rent unless your landlord has sent you a formal, written demand for it, but they can take legal action if you don’t pay after you’ve received the demand. Additionally, your landlord can only increase the ground rent if you agree to the increase or the lease says this can happen.

When you’re buying a house, choosing a good conveyancing solicitor is key to protecting your property and your interests in one of the biggest financial undertakings of your life. Taking the easy option, or cutting corners, can sometimes mean paying a huge price later down the line. At Progeny we take a thorough look at the whole picture, and have only your interests at heart, to ensure you don’t get caught out and that your property purchase is made on a firm footing.

If you are thinking about buying a property and would like some advice, please get in touch. We would be happy to help.

The content of this article is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Progeny Corporate Law Ltd accepts no responsibility for the content of any third-party website to which this article refers.

Photo of Sabina Dzudza

Author Sabina Dzudza

Senior Solicitor, Progeny Corporate Law

Sabina is a residential property lawyer who has spent over 13 years providing advice on all aspects of residential property, with particular expertise and experience in acting for High Net Worth individuals and developers in the prime London residential market.

Learn more about Sabina Dzudza

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