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Leasehold Property Reform in England and Wales - What Does It Mean For You?

February 11, 2021

Millions of homeowners are set to potentially save themselves thousands of pounds by freeing themselves from expensive ground rents, thanks to new leasehold reforms that the government has described as one of the biggest property law changes in 40 years.

A summary of the proposed leasehold reforms:

  • A ground rent cap on the amount payable when a leaseholder becomes a freeholder
  • The abolishment of costs such as the ‘marriage value’ Fairer and more transparent rates to be set for calculating lease extension costs or freehold purchases
  • The introduction of an online calculator to assist leaseholders to work out what it will cost to buy their freehold or extend their lease
  • The implementation of further protection for purchasers of leasehold retirement properties

Leaseholds will be able to extend their lease with zero ground rent

Under the proposed new legislation, leaseholders will have the option to extend their leases, with zero ground rent for up to 990 years. It has also been announced that the costs associated with lease extension - sometimes running into tens of thousands of pounds - are set to reduce under the new plans.

Until now, freehold-owning investors have levied ground rents on people’s homes, leaving many leaseholders with vast bills and nothing to show for it. Under the current law, when combined with mortgage repayments, the high ground rents many people are faced with can make it feel like they are making rental payments on a property they own. Freeholders have been allowed to increase ground rent fees with little-to-no benefit to the leaseholders, also often lengthening and increasing the costs associated with buying or selling the property in question.

These new laws will enable any leaseholder choosing to extend the lease on their home to do so without paying any ground rent to the freeholder, and assist those who dream of owning their home fully to do so without unfair expenses.

Ground rent payable will also be capped when a leaseholder opts to either become the freeholder or simply extend their lease. An online calculator is being introduced to assist leaseholders in calculating how much it might cost them purchase their freehold or otherwise extend their lease.

Prohibitive costs such as the ‘marriage value’ are also set to be abolished. The marriage value refers to a fee that represents the increase in property value following lease extension completion and will now, following recommendations by the law commission, be abolished under the new reforms.

The reforms were announced by Robert Jenrick, Housing Secretary, on 7 January 2021, who stated that the intention of the changes was to “Reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.’”


What is the ‘Commonhold Council’?

A Commonhold Council (a partnership between government, industry and leasehold groups) is also now being established by the government to prepare the market and respective homeowners for the widespread use of commonhold.

The commonhold model gives homeowners greater control over homeownership costs by allowing them to own their property on a freehold basis. Under the commonhold model, blocks are jointly managed and owned, too, meaning that when someone purchases a house or a flat, it is truly theirs, as are any decisions regarding its future.

What about retirement leaseholds?

Retirement leasehold properties will also be specifically addressed in further measures announced to protect the elderly. This will ensure that anyone purchasing a home specifically built for the elderly will have the same rights as any other homeowner and will be protected from expensive practices.

While these changes have left leaseholders feeling optimistic, there have been many calls for leaseholders who have previously suffered the brunt of high fees to be compensated. Leasehold campaigners are also seeking the additional reforms regarding existing retirement properties, as the current proposal only applies to the ground rent of new retirement property leaseholds, too.

So what does this mean for you?

Currently, there are 4.3 million leasehold properties in the UK. If you are one of these leaseholders, then these new reforms could potentially save you tens of thousands of pounds.

Under the current system, many homeowners of a leasehold property are being subjected to ground rents that increase by up to 100% every 10 years. This might seem fair if the current ground rent is, say, £200 annually, but, when doubling every 10 years, by 2121 leaseholders would be expected to pay £204,800 for that year in ground rent alone. Some may argue that it is allowing for inflation, but in fact, if it increased in line with the inflation of the last 100 years, the ground rent today would actually be just £9,864 annually.

Under the new regulations, ground rents on new properties will effectively cease to be. If you are a leaseholder, it will also be easier and cheaper for you to purchase the freehold of your property, as well as allowing you the right to take control by extending the property lease to a maximum term of 990 years - with zero ground rent.

Secondly, the creation of the Commonhold Council, proposed for implementation this summer, will facilitate the property market to prepare for a transition to a different type of tenure. If you live in an apartment, commonhold rules will allow you to own your apartment while also now jointly owning the land as well as the communal areas, along with your fellow apartment owners.

When will these changes take effect?

As for when these reforms will be officially passed in parliament, it remains somewhat unclear. The Minister responsible for leasehold, Lord Greenhalgh, responded to questions regarding the reforms on 5th January 2021 and said:

‘’We need primary legislation. I have been told by Professor Hopkins, who was in charge of the Law Commission work, that the preparations to get primary legislation ready for consideration by noble Lords will take approximately one year, so we are probably talking about the third Session.’’

Though there will be some wait, the reforms are at least imminent. These changes have the potential to make more homebuyers open to purchasing properties with shorter leases, which in turn could lead to fewer properties staying vacant due to short leases or extortionate ground rents. The general consensus is that these reforms are welcomed, so long as they are quickly implemented and clearly outlined.

Are you interested in buying a leasehold or freehold property?

If you would like advice on buying your first leasehold or freehold home, get in touch with us today on 020 7099 4000. You can also check out our great selection of affordable !!!!!!!properties for sale in London, or get an instant online property valuation to find out how much your property is currently worth.


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Comments

Clive Henderson
14 March 2021
Many thanks for this information. Do you by any chance have a contact within the government as to who to contact regarding this very important legislation. Whilst Im really thankful that this is at least a start for reform of the antiquated law relating to leaseholds, in my opinion these measures do not go far enough.
Ground rents should be abolished in their entirety. They are simply a levy on what These payments simply go the freeholder as some sort of tax and are never used for the expenses of the building. The whole notion that a freehold should be owned by a third party is also a nonsense. The only reason to own a freehold which has no intrinsic value is to rip off the leaseholders with excessive service charges or load the insurance costs.
Any advice as to who to contact would be most appreciated.

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