Frazer’s Industry News Update – August 2017
The proposed legislation regarding the banning of selling houses on a leasehold basis continues to make headlines.
As usual this is a campaign led by scaremongering press and an attention seeking politician that ignores the fact there is nothing wrong in principle with selling houses on a new build development on a long leasehold.
In my opinion, the practice itself is perfectly legitimate – it is the simplest way to ensure that the communal areas are maintained via the appointment of a management company. Where the problem lies is that, as usual, some parties (in this case mainly large housebuilders) have put onerous and inequitable terms into the leases which have severe financial consequences for the home owner.
HCD our associated development company have been selling houses on a leasehold basis but our contracts have always been fair and reasonable to the home owner. For instance, the ground rent in our contracts only increases every 5 years in line with RPI rather than doubling as in some other developers’ contracts. Clearly, it will have an impact on the overall GDV if we are no longer able to sell the houses to home owners on a leasehold basis, as previously we have been able to sell the freehold on to a ground rent purchaser at a multiple of c23 times to the annual value of the ground rent – a not inconsiderable sum.
However, most, if not all this amount, can be made up by increasing the price of each plot sale to allow for the fact it is being sold freehold and it should not therefore have a material effect on the GDV of our housing developments.