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Ground Rent Review on the Agenda for Government Consultation

Hannah Langford aSpecialist housing lawyers are calling on Registered Providers (RPs) to engage with a Government consultation which is seeking views on prohibiting the sale of new build leasehold houses and limiting ground rent.

Lawyers at national law firm Clarke Willmott LLP say that recommendations coming from the Consultation could be applied to shared ownership properties, a large area of work for RPs.

The July 2017 Consultation comes after the publication of the Housing White Paper ‘Fixing our Broken Housing Market’ earlier in the year, in which plans to reform the housing market were set out.

The Government is concerned that new build houses currently being sold on a leasehold basis are creating an income stream from the ground rent, which significantly increases throughout the term of the lease. This may not be offering a fair deal to current leaseholders.

The value of ground rents can be significant and the financial impact to leaseholders was highlighted in a recent case, cited by Communities Secretary Sajid Javid, where a family house was said to be unsalable because the ground rent was expected to reach £10,000 a year by 2060.

Hannah Langford, partner and development specialist in Clarke Willmott’s Social Housing team, said: “Registered Providers are delivering their ambitious housing delivery programmes through shared ownership housing and flats, as well as through properties that are eligible for Help to Buy funding. Given that the consultation affects their core business, it will be interesting to see how Registered Providers respond to the consultation.”

She further added: “The Government is asking whether shared ownership and Right to Buy properties should be exempted from the proposals. RPs need to engage with this consultation process to ensure their thoughts and preferences are known.                                                                                     

“RPs are alert to the issue of high ground rents and are already seeing local planning authorities setting limits on ground rents that can be charged on affordable units delivered through section 106 agreements.”

Hannah Langford concluded: “It remains unclear, however, how the Government will address the issue of onerous ground rents in existing leases.”

As a result of growing concerns, a leading house builder has already apologised for the problem and set up a Ground Rent Review Assistance Scheme for their customers facing doubling ground rent terms. The Government welcomed this review and is encouraging others in the industry to follow suit.

Nationwide Building Society has changed its mortgage terms and will no longer lend on new build properties (not including shared ownership properties) with ground rents with unreasonable multipliers, in other words ground rents doubling every 5, 10 or 15 years, requiring instead that any increase be linked to a verified index such as the Retail Price Index (RPI).

Subject to some statutory exceptions, for instance under the Right to Buy legislation where ground rent is set at £10 per annum, there are no limits on the level of ground rent payable in a lease. The consultation proposes to prohibit the sale of new build leasehold houses and to restrict ground rents for new leasehold properties. The Government is also considering changing the rules on Help to Buy so that equity loans can only be used to purchase new build homes on acceptable terms.

The consultation also asks whether shared ownership and right to buy properties should be exempted from the proposals.

The consultation will last for 8 weeks from 25 July 2017. You may respond by completing an online survey at https://www.surveymonkey.co.uk/r/leaseholdhouse

Clarke Wilmott LLP is a national firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton. For more information visit www.clarkewillmott.com.

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