Buying or owning a leasehold house

The sale of new leasehold houses is now largely banned but if you currently own a leasehold house or are considering buying one, here’s what you need to know.

What’s the problem with a leasehold house?

At the HomeOwners Alliance, we see no reason why houses should ever have been sold as leasehold. Doing so meant the homebuilder retained the freehold – the legal ownership of the land on which the house stands. This served the interests of freeholders at the expense of leaseholders.

Problems with freehold houses include:

• High ground rents: Some which double every 10 years
• Onerous fees: That must be paid to the freeholder for licences and permissions included in the clauses of the lease.
• Freeholds sold to large institutional ground rent investors: who ask for hugely inflated sums to sell the freehold to homeowners.

Leasehold houses – changes to the rules

The Leasehold and Freehold Reform Act 2024, which includes a ban on the sale of leasehold houses in England and Wales (other than in exceptional circumstances), is now law.

However, most of the reforms have not come into force yet, so leaseholders aren’t feeling the full benefit. For more information and the likely timeline of implementation, read our guide on Leasehold reform.

Although the number of new leasehold houses for sale started to decline dramatically in recent years as it became apparent that they would be banned:

• The proportion of new build leasehold houses rose from 7% in 1995 to a peak of 15% in 2016, down to less than 1% in December 2022.

What about ground rent and leasehold houses?

• The Leasehold Reform (Ground Rent) Act 2022 banned ground rent on most new leases granted from 30th June 2022, setting it at a nominal ‘peppercorn’ rate i.e. £0. But this only applies to leases created after that date. For retirement properties, ground rent was banned from 1st April 2023.
• For leases created before that date, if you were to carry out a statutory lease extension of your lease, your ground rent will also be reduced to a peppercorn, i.e. £0.

But ground rent still applies to existing leases. That means far too many leaseholders across the country struggle with punitive and escalating ground rents.

Arguably you shouldn’t have to do an expensive lease extension to be able to set your ground rent to zero. The government accepts this, but abolishing ground rents seems a long way off. At the moment, the following proposals have been made:

• The proposed Leasehold and Commonhold Bill promises to tackle unregulated and unaffordable ground rents on existing leases as well as removing the threat of forfeiture if you are in arrears. But this bill is currently being drafted, it’s far from clear how this may work and any law change is some time off. For more on this and other leasehold reforms, read our guide on leasehold reform.
• In late 2023 the then government issued this consultation seeking views on capping the maximum ground rent that existing residential leaseholders can be required to pay in England and Wales. We have yet to hear the government’s response. 

It’s worth noting the Leasehold and Reform Act 2024 currently being implemented by government does not include any changes to how ground rent is calculated. Find out more in our guide Ground rent explained.

CMA investigation into leasehold housing

Check if your developer has agreed to remove the doubling of ground rent clause or other clauses as part of the Competition and Markets Authority’s investigation into the leasehold housing market.

• For example, as of August 2022, Taylor Wimpey and Countryside properties subject to doubling rent every 10 or 15 years will be converted to RPI. 
• While in June 2021, Aviva agreed to remove the doubling ground rent clause from their leases and Persimmon offered leasehold house owners the option to buy the freehold of their property at a discount.

How much is ground rent on a leasehold house?

For those who currently pay ground rent, broadly speaking there are three different ground rent schedules for leasehold houses.

• Doubling ground rent every ten years: This is by far the worse one and is considered onerous.
• Doubling every 25 years: This is not as bad and is not considered onerous.
• Linked to RPI: This essentially means the ground rent you pay is linked to inflation.

I own a leasehold house: what are my options?

1. Consider suing your conveyancing solicitor for professional negligence

This seems like a drastic first step, but if they didn’t alert you to the fact your house was leasehold then your solicitor or conveyancer was negligent in not making you aware. You’ll need to be up for a battle; after all they do this for a living. It is not enough to believe or feel that you were inadequately advised, it is all about how much proof you have.

Here’s how to do it:

Get a copy of your file from the solicitor who advised you when you bought your house. You can write to your solicitor yourself or instruct a solicitor to do this for you. Be prepared to wait: your solicitor has to provide you with this report but there is no legal timeframe for them to do this by.

The most important document is something called your “Report on title”. This is the report on the pros and cons of you buying this property. This is the document that could give you the proof you need to sue your conveyancing solicitor. The most important bit of your file to look for is the part where it explains the ground rent ground in your lease and the implications it will have for you in the future.

You will also need to check all the documents in your file as well to see if any other documents your solicitor provided you in your report included advice on the ground rent of the lease, and:

• If there is no mention of ground rent or their implications you could have a very good chance of suing.
• If your file shows the solicitor simply states your ground rent is “£250 per annum” with no other advice you may still have a case to win.
• If it says “Ground rent is £250 and doubles every 10 years” but does not offer any other advice you may still win but a solicitor will try to assert they did advise you.
• If your file says “Ground rent is £250 doubling every 10 years and this could be bad” then your chances of success are reduced even further as the solicitor will insist they had properly advised you.

2. Consider buying the freehold of your home

By buying your freehold you could free yourself from unpredictable and unfair fees. Under the 1967 Leasehold Act you have a legal right to force your freeholder to sell you the freehold of your home. For more details, see our advice guide Should I buy the freehold?

However, the Leasehold and Freehold Reform Act seeks to make it easier and cheaper (for some) to buy their freehold. As we explain above, while this now law it has yet to come fully into force. So it’s advisable to get expert advice on whether now is a good time to buy your freehold.

Find a Lease Expert Solicitor

Get expert advice on extending your lease, buying your freehold or applying for the right to manage.

Get a free consultation & quote

3. Avoid informal agreements with the freeholder

As part of the process of buying a freehold, you will contact the freeholder. At this point your freeholder may offer you the opportunity to bypass the process of buying a freehold using a formal process with lawyers and may suggest an informal lease extension agreement. This almost always leads to a worst deal for you the leaseholder and should be avoided at all costs. Remember your freeholder has bought your freehold to make money.

Furthermore, buying your freehold ‘informally’ from your freeholder places you outside any legal protection you would have if you acted inside the 1967 Leasehold Act. Your freeholder can negotiate the very best deal for themselves on the freehold transfer and there is nothing you can do to remove anything from the contract you don’t like, it’s a take it or leave it deal.

When choosing a solicitor or valuer in the process find one signed up to ALEP which has a code of practice and where members have to prove their expertise in freehold purchasing