Concerns have been voiced that home owners have been left unaware of what they are buying. In particular, thousands who bought new build leasehold homes have been left with properties that are virtually unsalable as the result of bad ground rent terms attached to their lease, many of which see ground rents double every 10 years.
This has led numerous leaseholders to conclude that the only option is to buy the freehold of their home to remove the onerous ground rent clauses, but many are confused about how to acquire their freehold and unaware of the dangers and pitfalls involved.
Earlier this month the Nationwide Building Society announced that it will no longer provide mortgages on homes with onerous ground rent clauses. According to Louie Burns, managing director of leasehold enfranchisement specialists Leasehold Solutions, other major lenders are likely to announce similar policies over the coming months.
In recent months the LSG has been consulting with a wide range of interested parties to put together proposals to make the sector more transparent. It is calling for the Housing Minister to work with the Law Commission and others to put reforms in place.
‘We are now urging the powers that be to put in place a programme of change in order to provide both sellers and buyers of leasehold property with certainty, peace of mind, reasonable costs and a much greater degree of clarity in terms of what they are signing up to, and the responsibilities that are shared amongst those involved in their leasehold property,’ said Beth Rudolf, director of delivery as the Conveyancing Association.
According to Martin Callan, president of the Chartered Institute of Legal Executives, the proposals will ensure fairness to consumers, speed up the sale and purchase of residential leasehold properties and lead to less abortive transactions and loss of fees.
Burns explained that problems can arise when owners of leasehold properties get involved in so-called ‘informal’ deals which are negotiated directly with freeholders. ‘Leaseholders have the legal right to buy their freehold under the Leasehold Reform Act (1967). Here there is a legal process to follow, with a statutory valuation method set down by law,’ he said.
‘If the freeholder will not agree to negotiate fairly, home owners have a legal right to force them to and are offered legal protection on the terms of the freehold purchase. To many people this process may seem daunting and uncertain, and understandably people shy away from it,’ he pointed out.
They can end up seeking an informal deal which he believes is the worst thing to do as they have no legal protection whatsoever under statutory legislation. ‘We regularly see freeholders asking for up to 50 times the current ground rent on the property, which can be double or sometimes even triple what the valuation would be using the statutory method. We regularly see people who have bought their freeholds informally and paid up to £25,000 more than they should have done, simply because they accepted an informal agreement,’ he said.
‘In addition, an informal deal often won’t remove some of the costly terms that can be included in the lease, meaning home owners will continue to pay fees to the freeholder for permission to alter their own homes, even after they have purchased the freehold,’ he added.
http://www.propertywire.com/news/uk/new-housing-minister-urged-reform-residential-leasehold-system/
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