Housing developers will be required to give homebuyers information about the lease earlier in the homebuying process in what has been branded a "big victory" for consumers.
Responding to concerns raised by the Housing, Community and Local Government select committee, the government confirmed last week (July 3) that major housebuilders would be required to provide a ‘key features document’ with full lease details at the start of the sales process for new builds.
This is to make sure consumers are aware of the difference between leasehold and freehold properties after the HCLG committee found many leaseholders were not made aware of this difference at the point of purchase.
Under a leasehold the buyer owns the property but not the land on which it stands, whereas under a freehold they have outright ownership of the property and the land.
There are often additional costs and obligations that come with a leasehold property and properties on leaseholds are sometimes harder to sell.
The government hopes the ‘key features document’ requirement will go some way towards solving this issue, in addition to the already announced proposals to create a New Homes Ombudsman to protect the rights of homebuyers and hold developers to account.
The government also announced last week that all new-build homes were to be sold as freehold in a move to tackle unfair leasehold practices.
For second-hand homes — although the estate agents will not be required to give full lease details at the start of the sales process — the government has stated buyers must be told whether the house is a leasehold or freehold and if it is leasehold, the length of the unexpired lease.
The HLCG committee found there was evidence of mis-selling of leasehold properties where sales teams "deliberately misled" consumers with "partial sales information" and "false promises".
Although developers denied such accusations, the committee stated that "the number of near-identical stories" reflected "serious cross-market failure of oversight of sales practices".
According to the committee, some leaseholders were falsely promised they could buy their freeholds at an agreed price and that many had a strong claim their properties were mis-sold.
In response, the government urged the Competitions and Markets Authority to investigate such claims and the CMA has since announced it will look into the extent of any mis-selling and onerous leasehold terms.
Other moves set to be made by the government in response to the report include that consumers must have access to independent and reliable legal advice when purchasing a property and that service charges and one-off bills must be transparently communicated.
Law Society president Simon Davis said he partially welcomed the proposed changes.
He said: "It is encouraging to see government has recognised just how much easier it will be for consumers to make informed decisions if full information is provided at the very beginning of the home buying process.
"It is particularly pleasing that alongside the government-proposed key features document for new build homes, there will also be some provision for the second-hand market. This will help consumers to make comparisons between properties they wish to view."