Michael Gove has announced that the government plans to abolish tenancy laws which prevent some flat owners from buying full ownership of their properties.
The Secretary of State for Upgrading, Housing and Communities said the government will also make it easier for apartment tenants to bring their buildings into a common ownership model.
This would save them from paying expensive ground rents and management fees on their properties.
We take a look at what’s on offer and what it could mean for leaseholders.
Consultation: Michael Gove, the leveling secretary, has proposed various changes that could make it easier for leaseholders to become freeholders
What are leasehold and freehold properties?
In the UK, houses are purchased freehold or leasehold. When you buy a freehold property, it means that you own the property and the land it is built on indefinitely. This is the most common way to buy a house in the UK.
However, with a leasehold purchase, you only own the property for a set period of time, but not the land it is built on. The landowner remains the freeholder. This arrangement is most common with apartments, but you can get houses on lease.
The lease you buy is often long – usually between 99 and 999 years. Banks generally lend mortgages as long as the lease has 75 years remaining, but once the lease drops below around 70 years it can be more difficult to sell the property.
Freehold owners can also place restrictions on what leaseholders can do with the property.
And tenants pay ground rent for the land, plus a service fee to help cover free landlord liability for shared areas such as hallways or a garden.
What changes did Michael Gove propose?
Speaking on television on Sunday, Gove said the lease is ‘unfair’ and that ‘in crude terms, if you buy a flat it should be yours’.
“You should not be held responsible for charges that management agents and others may throw at you that you abuse,” he added.
He has launched a consultation on the changes which, if approved, would mean millions of families living in leasehold homes could have more power to buy their property ahead of the next election.
Other changes could include no longer requiring tenants to pay for expensive repairs such as unsafe coatings, as the burden would shift to landlords.
The issue was a point of contention following the tragic Grenfell Tower fire in 2017.
It’s unclear exactly how the new regime would work, but the changes would impact nearly five million households before the next general election.
Gove warned the changes needed legislation, adding: ‘because you have a tangle of agreements going back hundreds of years – unraveling all of that is difficult – but the fundamental thing is that tenancy is an unfair form of property It is an outdated feudal system that must go.
Can tenants purchase full ownership currently?
The government banned the sale of new homes as leasehold properties in 2019, with the change taking effect in June 2022.
Existing houses and newly built apartments can currently still be sold as a lease. However, in recent years, the option of becoming a “freehold owner” has become much easier.
This allows tenants to own their apartments, although it works differently than owning a freehold house.
Normally, all the owners of leasehold apartments in a building club together buy the freehold from the landowner and then each own a share.
Changes: Michael Gove, Secretary of State at the Department for Levels, Housing and Communities has launched a consultation on the tenancy system
They still own their leasehold properties, but they also own a share of the building and the land it sits on.
As freeholders, they can grant new long-term leases, often for a maximum of 999 years, with minimum land rents.
This is technically preferable to owning a freehold apartment, which causes problems with insurance companies and mortgage lenders.
What other rental changes are planned?
The proposals would also give tenants the option of buying out ground rent without having to extend the term of the lease, making the process of obtaining full ownership cheaper and easier.
They could also make it easier for apartment tenants to group together and purchase full condominium ownership.
Co-ownership is a type of freehold ownership in a multi-occupancy building where there is shared responsibility for common services.
Earlier this month the Department for Leveling, Housing and Communities launched a consultation giving landlords and the housing industry a chance to express their views on the tenancy system.
Tenancy Minister Lord Stephen Greenhalgh said: “The current tenancy system is outdated, unbalanced and broken and we are determined to fix it. Our proposals aim to rebalance power and should see more tenants than ever hold full rights to their homes.
“This is in addition to our new approach to building security, which includes decisive measures to protect tenants”
The Homeowners Association said it would also like the way we assess the cost of extending a lease or buying a freehold to be simplified as part of the reforms.
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