Leasehold Housebuilders Agree to Offer Concessions to Leaseholders

Two leading names in the leasehold sector have agreed to significantly change the way they operate, providing more freedom to leaseholders in the process.

It has been announced that national housebuilder Persimmon will allow its leaseholders to buy the freehold of their property at a discount, while insurance Company Aviva have agreed to pay back homeowners who have seen their ground rents double.

These changes come after The Competition and Markets Authority (CMA) launched an investigation into leaseholds in 2020, due to concerns that leaseholders were facing huge and unexpected increases in property prices and ground rent.

CMA chief executive Andrea Coscelli has said that the watchdog is now expecting other housing developers and investors to take similar action, following what she described as a “real win for thousands of leaseholders”.

What is the difference between leasehold and freehold properties?

A leasehold is property is where someone owns a property, but not the land on which it is built. Instead, the land is owned by the freeholder. The owner of a leasehold property has the right to live in the home for a set number of years, which is specified in the lease.

Leasehold properties with less than 80 years on the lease are much more difficult to sell and remortgage, which means leaseholders generally have to pay a fee to extend the lease.

Leaseholders need to get permission from the freeholder to make certain alternations to the property and they will also need to pay rent each year, which is known as ‘ground rent’.

Owners of freehold properties are the sole owner of the building and the land it sits on, which means there is no need to pay ground rent or worry about leases.

Why was the investigation into leaseholds necessary?

The CMA launched enforcement action against four of the UK’s leading house builders over allegations of mis-selling leasehold homes and handing out unfair contract terms.

Barratt Developments, Country Properties, Persimmon Homes and Taylor Wimpey were all put under investigation after the CMA came to the conclusion that people buying leasehold properties were being misled and taken advantage of.

The developers faced criticism for a number of perceived failures, many of which breached consumer protection law. These included a failure to explain terms such as ground rent, misleading homebuyers on the availability of leasehold homes, using unfair sales tactics and including ground rent doubling clauses.

What changes are Persimmon and Aviva making to leaseholds?

Persimmon has extended its existing Right to Buy scheme to cap the purchase price of a freehold at £2,000. The extended scheme is going to be applied to any leases which were sold on or after 1 January 2000 and would run until 31 December 2026.

Customers who had already acquired their freeholds from Persimmon under the existing Right to Buy scheme, and who still own the freehold, could apply to be reimbursed for the difference between the price paid and £2,000.

Under the new commitments, Aviva have agreed to remove ground rent terms that the CMA considers to be unfair and repay homeowners who saw rents doubled.

In a statement, Aviva said that it voluntarily agreed to amend a ‘small proportion’ of leases it acquired with terms which cause rents to double every 10 or 15 years. Over 1,000 leases were affected by the agreement.

Are further changes to leaseholds on the horizon?

While the news that both Persimmon and Aviva are changing the way they operate has been welcomed by campaigners, there is still plenty of future work on the horizon.

The CMA are said to be hopeful that, after convincing both Persimmon and Aviva to offer concessions, this will pressure other major housebuilders to do the same without the need for costly court cases.

However, this may be complicated by the fact that there are a number of new faces in the leasehold market, especially as a recent trend has seen lucrative contracts containing high ground rent being sold on to investment companies looking to make a profit.

The government says it planning to ban ground rent from future contracts, but that won't help those who have an existing problem, unless the watchdog does more to force other builders and investment firms to change their contracts too.

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