Carl Parslow: Can the Government End The Leasehold Trap?

Right now, Westminster is in a very strange place. Between Brexit negotiations, propping up a minority government and another potential general election looming, every other political issue seems to be fading into insignificance.

This is a shame, because it’s rare when all parties in Westminster can agree on something, and the leasehold trap is something which all parties agree needs to be tackled. It just so happens that this scandal chose to rear its head during such a tumultuous time for British politics.

Parslow: Brexit is dominating the political agenda at the expense of other pressing matters. Source: Wikimedia

What Is the Leasehold Trap?

To understand what makes the leasehold trap so nefarious, you need to understand the difference between leasehold and freehold contracts in the UK. When someone owns the freehold to a property in Britain, they own the whole thing indefinitely. The land the house is on and the house itself is theirs for as long as they want it.

Leaseholds are different.

If you own the leasehold, you don’t own the property forever. Typically, a leasehold lasts for over 100 years, but the idea is that you can’t pass it on to another family member, as you might do a house. What’s more, you don’t own the land which the property is on, so you need to pay ground rent for the upkeep of the surrounding area. Most leaseholds are flats in a block of flats, so paying this ground rent makes sense. After all, someone needs to pay for the communal areas like the stairs and corridors.

The boss: Carl Parslow is a legal expert and the Head of Property Law at Parslows

Leasehold traps are when home-builders and landlords take advantage of the ways in which leaseholds can be manipulated. For example, home-builders have started selling new-build houses as leaseholds. When most people buy a house, they assume that they are buying the land that it’s on and the whole thing for as long as they want it.

However, by selling new-builds as leaseholds, home-builders can create a “block” of new-builds which they charge ground rent on and can increase that ground rent as and when they choose. They can even make the leases less than eight years, so that the people who buy will struggle to sell them.

The result is that many first-time buyers are “trapped” in these homes which they can’t sell and are forced to pay increasing ground rents on. It’s been labelled “the PPI scandal of the housing market”, so it’s easy to see why all parties agreed it should be tackled.

And so tackle it they did, with the government announcing a ban on all leaseholds for new-builds. So problem solved, right?

Parslow: Some developers have created leases of less than 8 years on new build estates. Source: Flickr

The Problem With the Solutions

It’s not just new-build owners who have been caught out by the leasehold trap.

Flat owners have been asked to pay increasing ground rents too and have been sold properties with less than 80-year leases on them. The new legislation will do good work for new-build owners, but it won’t do enough to eliminate the trap completely.

This, of course, is assuming the legislation gets through the British Parliament. A pre-election cross party consensus on the issue might have been dampened by the current rivalling factions in the House of Commons.

Nationwide’s lending metrics have made hundreds, and possibly thousands, of new-build flats and houses almost unsaleable. Source: Wikimedia

Assuming the government isn’t able to solve the issue, the private sector may well step in. This might not sound plausible, but it’s already happened. Nationwide has refused to give landowners mortgages if the ground rents on their properties are too high and Taylor Wimpey was forced to give out millions in compensation after owners complained about their ground rents.

Then there are property lawyers who can offer leasehold conveyancing to make sure that property buyers know their rights under the Leasehold Reform Act of 1967 and turn down leaseholds which are intended to trap them.

So, if Westminster doesn’t solve this problem, we’ll just have to hope that someone else might.

[ap_divider color=”#CCCCCC” style=”solid” thickness=”1px” width=”100%” mar_top=”20px” mar_bot=”20px”]

Carl Parslow is a legal expert and the Head of Property Law at Parslows, the law firm which bears his name. As a Jersey-based lawyer, he specialises in leasehold conveyancing for properties in Jersey.