Michael Gove urged to close ‘loophole’ in leasehold crackdown

Michael Gove

The housing secretary Michael Gove is being urged to close a “loophole” that allows building companies to sell freeholds to private companies without offering it to leaseholders first.

Conservative MP Bob Blackman raised concerns at the final reading of the leasehold reform bill yesterday, arguing that legislation currently permits companies to sell freeholds to firms that exploit “every aspect of the freehold”.

It was one of several concerns raised by MPs about the Levelling Up Secretary’s signature bill, which promised to end extortionate leasehold prices for thousands of households.

Sebastian O’Kelly, chief executive of the Leasehold Knowledge Partnership, which represents leaseholders, said: “It is a shame that this bill continues to allow the leasehold system to be propagated, even on new houses. The best solution would be to replace it altogether.”

Gove has pledged to end the leasehold system, calling it “outdated” and “feudal”. Millions of property owners own their homes through leases in England and Wales, which are almost the only places in the world where the system exists.

But current legislation gives developers at least two ways to circumvent the Right of First Refusal. A builder can either arrange to sell the freehold at a future date to a third party investor so long as that agreement is created before they sell the first flat, or they can transfer the ownership of the freehold to a company and then sell the company after two years.

These loopholes have been used to stop many flat buyers from owning a share of the freehold and having control of their site.

Blackman said that banning this practice should be included in the legislation, which is about to progress to the House of Lords.

He said: “Surely we can close this loophole and close it this afternoon by ensuring that the freeholder must give the leaseholder first right of refusal to purchase the freehold.”

Responding, housing minister Lee Rowley said: “I do understand the point he is making. I hope that some of the changes that are within this bill should mean that the acquisition of the freehold is much easier [for leaseholders].”

The leasehold bill’s main provisions would make it cheaper and easier for leaseholders to extend their lease and buy the freehold, increase the standard lease extension term to 990 years and reduce ground rent to a peppercorn of zero financial value.

 

Bill to ban leaseholds fails to ban leaseholds after government error

 

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2 Comments

  1. MrManyUnits

    Once again another glaring error by Gove, so the fool was just going to hand big business freeholds on a plate.

    Report
    1. Anonymous Coward

      Nobody wants to buy them any more.

      If the legislation passes “as is” then the investment value would appear to have been eviscerated.

      Loophole (1) – since all new leases will have to be at a peppercorn rent and buyers insist on at least 125 years for a new flat, this is a loophole that would never be used because there is very little value in the freehold straight away. Also, if the freeholder has to pay their own costs for a lease extension then it would potentially put any investment buyer into a negative position from the get-go.

      Loophole (2) – again, the leaseholders will be able to enfranchise at a much reduced cost compared to today and the freeholder might have to cover their own costs. What investment buyer is going to pay good money for that scenario?

      Closing the loopholes is a good idea because then there are no loopholes.

      But if the legislation goes through then big business will be put at a SERIOUS disadvantage.

      Which, of course, they are not going to take lying down.

      Cue the barristers…

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