Buying or owning a leasehold house

With the sale of leasehold houses to be banned under government proposals, if you’re thinking of buying a leasehold house rather than freehold or have realised your house is leasehold now that you’ve moved in, we look at what you need to know.

Angela Kerr Director, Editor

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 means the homebuilder retains the freehold – the legal ownership of the land on which the house stands. This serves 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

In the November 2023 King’s Speech, the government announced it will introduce a new Leasehold and Freehold Reform Bill to:

• Ban new leasehold houses in England and Wales, other than in exceptional circumstances. This ban does not extend to flats
• Make it cheaper and easier to extend your lease or buy the freehold for existing leaseholders in houses and flats.
• Increase the standard lease extension term from 90 years to 990 years for houses and flats, with ground rent reduced to £0

To find out more, read our guide on Leasehold reform. The move to ban the sale of leasehold houses was expected as the government announced in 2019 its previously announced plans to abolish the unjustified practice of selling new houses as leasehold properties.

As a result, while the proportion of new build houses sold as leasehold rose from 7% in 1995 to a peak of 15% in 2016, the proportion has subsequently fallen, and was less than 1% in December 2022.

What about ground rent and leasehold houses?

Ground rent was banned on most new leases from June 2022. While in the 2023 King’s Speech, the government said it will consult on the capping of ground rent for those who currently pay it as part of leasehold reforms. It says it wants to ensure leaseholders don’t have to pay for unnecessary services and that charges are reasonable and no longer cause an issue when people come to sell. The consultation is open and will close at 11.59pm on 21 December 2023.

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.

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.

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 Bill seeks to make it cheaper and easier to extend your lease or buy the freehold for existing leaseholders in houses and flats. It looks like the Bill will introduce a statutory calculation to determine the value of the premium a leaseholder pays to a freeholder. This is something the government has previously promised and at HomeOwners Alliance we support this as we’ve been calling for a simpler way to value the cost of extending a lease or buying a freehold.

By formally setting out the cost, the Government would be protecting leaseholders from costly and time-consuming negotiations. However until this comes into force we are stuck with the current system. The amount you pay is open to negotiation and at the moment it’s critical you get sound valuation advice.

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