Industry experts react to Government’s plans to ban leaseholds on new build homes

The housebuilding industry has reacted to the Sajid Javid’s call for a ban on leaseholds on new build properties. While some agree that it’s a step in the right direction towards tackling the housing crisis, others feel completely outlawing leaseholds is going too far and that setting out fairer rules should be considered instead.

The House Builders Association (HBA) – the housebuilding division of the National Federation of Builders (NFB) – said:

“We think that leaseholds can still be a legitimate model of ownership for housing. Everything of course depends on how properly this model is managed.

“HBA members are the small and medium-sized house builders, who tend to work within a 15-mile radius of their head office. They have always backed good practice and transparency by delivering leasehold properties with considerate and clearly-presented terms.

“Rico Wojtulewicz, policy advisor for the HBA, explained how on BBC Radio 5 Live: “An HBA member in Sheffield offers 249-year leases with ground rent charges of £100 annually, increasing then by £100 every 30 years. Ground rents can be legitimate for the adoption of roads, sustainable drainage costs, maintenance of common spaces, or lighting on a site. However, there needs to be clarity in the process and fees need to be fair. Value doesn’t end at the point of sale.”

“Rather than completely outlawing leaseholds on new-build homes, the Government ought to explore ways to make the system fairer in a manner that works for people. Looking at the model presented by HBA members would provide a good starting point.”

Christopher Grady, partner and residential development specialist at Weightmans LLP said:

“An outright ban would be difficult to manage and it’s an issue that developers are already addressing. The volume housebuilders I work with are moving away from the leasehold model to prioritise freehold sales. They’re also taking steps to make leasehold terms more customer centric for those sales still in the pipeline – such as extending the length of leasehold agreements or ensuring ground rent reviews are index-linked.

“Mr Javid must also consider that it will take time for major changes to work through the system. In the short term there will be many cases where existing arrangements still require houses to be sold on a leasehold basis. There are also circumstances where long-lease sales are necessary – particularly where the development land is purchased on a long lease and the housebuilder does not own the freehold.

“The consultation should also consider the benefits that leasehold agreements can offer buyers, such as where there are costs involved for managing community spaces which are incorporated into the lease and easier to manage.

“In that respect there’s an argument for the Government to focus on the terms of the leases as opposed to a blanket ban.”

Ian Fletcher, director of real estate policy at British Property Federation commented:

“We welcome the Government’s consultation on unfair leasehold practices. It is important to distinguish between houses and flats, where the use of leasehold in flats is very common, but irregular in new build houses. Traditional freehold owners of leasehold flats have been aghast at the use of leasehold in houses, which is in most cases wholly unnecessary and inappropriate. The motivation seems to have been to raise unreasonable ground rents and, for the sake of home owners, the Government is right to clamp down on house builders who have been abusing this form of tenure, and with it their customers.

“The Government has also announced improving the process for recognising tenants’ associations. It is something we have long-supported. Tenants’ associations have rights of scrutiny over the running of their buildings, but with buy-to-let and other types of non-resident owner it is often difficult to make contact with the people who would have a vote in such circumstances. Making that process easier has our support. We would also support changing the threshold of votes needed to form a tenant association, from the 60% in current guidance, to a simple majority.”

Mark Farmer, co-founder and CEO of Cast and author of Farmer Review: Modernise or Die said:

“The government’s plans to ban leaseholds on new-build houses in England is a step in the right direction for fixing our broken housing market. Leasehold agreements for houses and the subsequent ground rents that are charged, artificially distort a housing market that is already struggling with issues surrounding affordability. Banning developers from selling new-build houses on leasehold agreements to drive additional revenue may help recover some of the confidence that the public has lost in the sector. Without action on this and the parallel housing quality debate there is a real risk of buyers starting to move away from new build stock which would be a disaster for housing supply.”

Anne Baxendale, Shelter’s director of communicaitons, policy and campaigns, said:

“Our housebuilding system is failing families all over the country, many of whom are being stuck with ever increasing charges on expensive, and often second-rate, new homes.

“While the leasehold system can help make sure new homes are properly serviced, it’s clear it has been massively abused by developers who are using this to get something for nothing. Ground rent charges should be transparent and fair, and it’s vital that families hit by unjust charges are compensated.

“It’s good to see the government upholding commitments from their Housing White Paper, but it’s also important to remember this is only one small piece of the puzzle when it comes to our broken housing system. The only way we can put an end to this miserable housing crisis is for the government to get behind a different way of building homes, which puts the needs of families and communities first.”