Residential leasehold: will good intentions lead to good law?

by Dentons


In 2017 the Department for Communities and Local Government launched a consultation on "tackling unfair practices in the leasehold market" (see our related update). The government has now issued its response to the feedback from that consultation, outlining a number of significant proposals for reform of residential leasehold in England.

Ban on the sale of new build leasehold houses

The headline proposal for reform is the government's declaration that it will "bring forward legislation as soon as Parliamentary time allows to prohibit new residential long leases from being granted on houses, whether new build or on existing freehold houses". Note that:

  • the ban is on new leases; it does not affect existing leases already granted;
  • the ban relates to houses only – the government promises to ensure that the legislation clearly defines both "new build" and "house"; however, it is likely that, whatever definitions are used, there will be a degree of ambiguity;
  • where land is currently subject to a lease, the government expressly confirms that "developers will be able to build and sell leasehold houses on that land". However, anti-avoidance legislation will be introduced to limit this exception to land that was subject to a lease as at the date of the government's response (21 December 2017) – we wait to see whether this will also exempt land that was subject to an agreement for lease or option to create a leasehold interest which subsisted at this date;
  • the government does not commit itself to providing any exceptions to the ban but does acknowledge that it will still consider possible exemptions, for example, to support shared ownership and possibly for some Community Land Trusts. As such, there is still time for parties to lobby the government for an exemption though any concession is likely to come with limitations on the terms on which new leaseholds are provided to consumers.

While the use of leasehold rather than freehold may sometimes be driven by a desire to maximise revenue streams, that is not always the case. It is widely acknowledged that it is far easier to set up a workable scheme for the maintenance of common parts, facilities and mutual obligations when using leasehold since, as the law currently stands, it is more difficult to pass on positive obligations within a freehold scheme. As such, it is vital that the government, when pressing through these reforms, also presses through the related reforms of freehold covenant law (as proposed by the Law Commission) and commonhold to ensure that developers have a practical means of managing communal matters and delivering the much needed residential development the government is so keen to procure.

Limiting ground rents to a peppercorn for all new residential leases over 21 years

While ground rents offer clear financial benefits to institutions and developers, the government can see no benefit to the consumer. As such the government is to introduce legislation to limit ground rents on newly established leases over 21 years of houses and flats to a peppercorn (zero financial value).  Provision is to be made to ensure that this change does not interfere with shared ownership schemes.

The restriction will not apply to existing leases; however, the government is still keen to help existing leaseholders through the following measures:

  • encouraging developers to extend compensation schemes and support to existing leaseholders with onerous rents (or rent reviews) including second hand buyers. Developers are expected to proactively contact affected parties and if insufficient steps are taken the government may take further action. One issue is that the response does not clearly identify what the government considers to be an onerous ground rent for existing leases. The fact the government wants to limit new ground rents to a peppercorn suggests that the threshold will be set quite low; however, the industry would surely welcome a clarification of this point;
  • working with the existing redress schemes and Trading Standards to provide leaseholders with "comprehensive information on the various routes to redress available to them, including where their conveyancer has acted negligently";
  • getting the Law Commission to consider:
    • clarifying the law relating to unfair terms when a lease is sold – currently only the original leaseholder can challenge a lease under the unfair terms law; and
    • making it easier for leaseholders to exercise their right to buy their freehold or extend their leases (see below);
  • introducing a right of first refusal for house lessees. The equivalent right of first refusal for flat lessees is set out in Part I of the Landlord and Tenant Act 1987, the drafting of which was once described as "ill-drafted, complicated and confused"1. We have to hope that any attempt to replicate rights of first refusal for freeholders will be more successful.

Making it easier for leaseholders to enfranchise

The government has outlined in its response a desire to make it easier for leaseholders to exercise their right to buy the freehold, or indeed extend their lease and for this right to be available as soon as possible.

To facilitate this, the government has pledged to work with the Law Commission to consult on introducing a prescribed formula to work out what the leaseholder is to pay to enfranchise, with a view to also save the leaseholder incurring additional court costs. They will also seek to work with UK Finance to encourage lenders to assist with finance options for leaseholders wanting to acquire the freehold of their property.

Other proposals and issues

The government's response outlines a number of other proposals and issues, namely:

  • the government does not think it is appropriate for Help to Buy to be used to support the sale of leasehold houses. The Secretary of State for Communities and Local Government has written to developers to "strongly discourage" the use of Help to Buy equity loans for the purchase of leasehold houses in advance of new legislation;
  • taking action to ensure that where ground rents exceed £250 per year or £1,000 per year in London the leaseholder is not classed as an assured tenant and therefore cannot be issued with a mandatory possession order for ground rent arrears (see our original update for more details);
  • legislating to provide freeholders equivalent rights to leaseholders to challenge the reasonableness of service charges levied for the maintenance of communal areas and facilities;
  • changing the law so that rentcharge owners are not able to take possession or grant leases on the property where the rentcharge remains unpaid for a short period of time;
  • considering the introduction of a minimum lease term for new long leases on flats – no further details are provided; and
  • reinvigorating commonhold.

This is in addition to the government's ongoing projects to professionalise managing agents, ensuring landlords are signed up to redress schemes and modernising the home buying process.


The government clearly has good intentions for reforming residential leasehold law in England; however, the concern has to be whether those good intentions can, and will, translate into good law. While the broad aims of the government's strategy, such as the ban on new-build leasehold houses, are clear, the details are not and that could be a problem. Developers will need clarity, not only to plan future developments but also to handle the completion of existing schemes and that is what is lacking. Even if the government brings forward legislation quickly to implement the key changes that may not be enough. As acknowledged in its own response, in order to tackle the issues identified with residential leasehold law, the government needs to go much further and address much wider issues such as freehold covenants and commonhold suggesting that reform in this area is a longer term project.

[1] Sir Nicholas Browne-Wilkinson VC in Denetower Ltd v. Toop [1991] 1 WLR 945


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.