U.K. Broadens Crackdown on Archaic Property Leasehold System

(Bloomberg) -- The U.K. government is cracking down on what it called “unfair” leasehold practices as part of sweeping reforms to its housing system, in a move that would modernize the property market to bring it more in line with nations such as the U.S.

Initially prompted by a malpractice scandal, the proposed scope of the focus by the Ministry of Housing, Communities & Local Government has become far broader. A consultation will seek views not only on the practice of charging buyers an annual fee for owning leasehold properties -- known as ground rents -- it will review the whole process of buying, selling and property management of leasehold homes.

The practice of selling leasehold properties, a relic of an archaic system where property is sold to buyers for a fixed time period, remains popular in the U.K., especially in London, according to data from Bloomberg Intelligence. Most homes are sold on a freehold basis in countries such as the U.S., where buyers can own the underlying property indefinitely.

The government said it will seek views on how to implement on the unjustified use of leasehold for new houses and pledged to make the system “fairer and more transparent.”

The U.K.’s scrutiny of malpractices in the leasehold market, where some leases can run as long as 999 years, intensified after customers complained about soaring ground rents charged by firms. London-based builder Taylor Wimpey Plc last year set aside money to renegotiate the terms of agreements with home buyers after customers complained about clauses that allowed ground rents to double every decade until the 50th year, making their properties unsellable.

Read an analysis of leasehold reform

In coming years, the overhaul being considered will hit developer earnings as companies renegotiate agreements with buyers. But over time, it promises to support growth as it restores buyer confidence and encourages purchases of freehold properties.

©2018 Bloomberg L.P.