One type of house now banned from sale in radical new law change

A new law has been put into force which will affect everyone buying a house.

The government has now put the Freehold Reform Act into law, which will put into place a raft of new measures aimed at protecting leaseholders but which will also affect those who are looking to buy a house as well as landlords who let houses.

The law makes it ‘cheaper and easier’ for people to buy their freehold house and increases standard leasehold terms from 50 years to 990 for houses and flats.

A leasehold is when the land the house is built on is rented out, but the property built on it is owned. Someone buying a leasehold house or flat will have to pay an annual ground rent for the leasehold, which can be anything from a peppercorn £20 a year up to hundreds or even thousands of pounds a year, but is usually around £200-300 per year. A leasehold can technically see the land handed back to the owner if it isn’t extended by the end of the contract term, usually 125 years from new for flats and houses – but renewal also costs money.

The issue hits home owners buying leasehold because the house or flat eventually becomes worthless if there isn’t enough time left on the contract and it isn’t renewed.

Freeholders, by contrast, don’t pay any ground rent.

The biggest change in the law is that new leasehold houses will be banned from sale, while existing freeholders must be offered a cheaper renewal.

 

The full list of changes in the law are:

  • The government is planning to make it more affordable and straightforward for individuals to extend their lease or purchase their freehold, providing leaseholders with increased security in their homes.
  • The standard lease extension term will be increased to 990 years for both houses and flats, up from the current 50 years for houses and 90 years for flats. This change will allow leaseholders to enjoy secure ownership without the need for costly and time-consuming future lease extensions.
  • Leaseholders will also gain greater transparency over their service charges, as freeholders or managing agents will be required to issue bills in a standardised format that can be easily scrutinised and challenged.
  • It will become easier and less expensive for leaseholders to take control of the management of their building, enabling them to appoint the managing agent of their choice.
  • Leaseholders will also find it cheaper to exercise their enfranchisement rights, as they will no longer be required to cover their freeholder’s costs when making a claim.
  • Access to redress schemes for leaseholders will be extended to challenge poor practice. The government will require freeholders who manage their building directly to belong to a redress scheme, allowing leaseholders to challenge them if necessary managing agents are already required to belong to such a scheme.
  • The process of buying or selling a leasehold property will be made quicker and easier by setting a maximum time and fee for home buying and selling information.
  • The Act will grant homeowners on private and mixed tenure estates comprehensive rights of redress, ensuring they receive more information about what charges they pay, and the ability to challenge their reasonableness

Further benefits for leaseholders include:

  • The abolition of the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice, a deterrent currently preventing leaseholders from challenging their service charges.
  • A ban on opaque and excessive buildings insurance commissions for freeholders and managing agents, which will be replaced with transparent and fair handling fees.
  • A prohibition on the sale of new leasehold houses, meaning that, barring exceptional circumstances, every new house in England and Wales will be freehold from the outset.
  • The removal of the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.

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