A major breakthrough in the reform of leaseholds has been secure by the Competition and Markets Authority (CMA) this morning.

The watchdog has secured commitments from two of the UK’s leading players in the leasehold house market to change their contracts to end doubling ground rents and enable existing home owners to buy their freeholds at a discount.

These changes follow a campaign by the CMA to look into unfair practices within the house building sector and enforcement action last year against several developers.

It has also been revealed that the watchdog has been putting pressure on several of the institutional investors who buy freeholds off house builders once developments are completed and who benefit from often unfair ground rent terms.

- Advertisement -

The two companies involved are builder Persimmon and freeholder Aviva.

Doubling removed

The insurance giant has promised to remove doubling ground rent and retail price index-based ground rent increase clauses from existing leaseholds and revert the leasehold to their starting ground rents.

Aviva will also reimburse property owners who have been affected by doubling ground rent clauses.

Persimmon, on the other hand, is to offer leasehold house owners – which are largely concentrated in the NW of England – the option to buy the freehold of their property at a discount, and reimburse those who have already bought their freeholders without the discount.

Pressure sales

The house builder has also agreed to give home buyers more time to purchase a property after reservation to stop ‘pressure sales’ during which many people don’t have the time to understand the annual costs of owning their home.

Andrea Coscelli, Chief Executive of the CMA, says: “It’s good that Aviva and Persimmon have responded positively to this investigation, enabling these issues to be fixed for leaseholders.

“But our work isn’t done. We now expect other housing developers and investors to follow the lead of Aviva and Persimmon. If not, they can expect to face legal action.”

Housing Secretary Robert Jenrick says: “The Government asked the CMA to conduct this investigation – and I welcome their efforts to bring justice to homeowners affected by unfair practices, such as doubling ground rents, which have no place in our housing market.

“We have also introduced new legislation that will protect future homeowners by restricting ground rents in new leases to zero and I would strongly urge other developers to follow suit in amending their historic practices.”

Other developers and freeholders facing the CMA’s wrath over leaseholders include Taylor Wimpey, Countrywide Properties, Brigante Properties, and Abacus Land and Adriatic Land.

Find out more about leaseholds and freeholds.

3 COMMENTS

  1. What happens to an Apartment on a 99 year lease and the Builder advises that if I wished to purchase the lease on the Apartment then I would have to purchase the block. The 99 year lease appears to be unreasonable and is affecting the resale price whilst other developers offer a 999 year lease. Please could you advise.

    • It is correct that if you want to buy the freehold you would have to buy it for the block. It’s not possible to have a “flying freehold” on your flat – and if you did somehow manage it, it would make it unmortgagable.
      As to individual flats, what you would be looking at is extending the lease – for which the building owner will charge “a significant amount”. Like leasehold houses, short leasehold flats (e.g. 99 year leases instead of 999) are a bit of a scam to trap the unaware public into forking out more money – in this case to buy a longer lease.

      The reason you don’t want a flying freehold is this. By having a leasehold, if the building “falls down” then the freeholder is responsible for putting it back up – the whole of it – so you can then re-build the inside of your own flat. If the flats had flying freeholds, then you would be reliant on the owner below you building theirs before you could rebuild yours on top, and so on up the building. If any owner didn’t rebuild – perhaps if they didn’t have insurance and couldn’t afford it – then those above would have nothing on which to build (hence why no lender would give you a mortgage on a flying freehold flat).
      Also, in terms of maintenance, if the top flat decided not to repair (e.g.) a leaking roof, then water could run down all the flats and there’d be little you could do about it (repairing someone else’s roof without permission would be trespass and potentially criminal damage). Hence by having a freeholder with responsibility to keep the shell of the building, and shared areas/services such as stairs and lighting, in good order protects all of you from each other’s potential failures.

  2. What about landlords who may own 1 flat in a large block, doesn’t have a great deal of money like big landlords and faces ever rising ground rent on top of building management costs and tenant management costs? Could they benefit from these changes, i.e. will the companies owning these freeholds be pressurised into lowering ground rent?

Leave a Reply to Ivor Stokes Cancel reply

Please enter your comment!
Please enter your name here