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Leasehold Reforms

Reform announcements promise brighter future for leaseholders

On January 7th 2021 the Housing Secretary Robert Jenrick announced one of the biggest changes in English Property Law for the past 40 years. Leaseholders will now be given the opportunity to extend their lease by a maximum of 990 years at zero ground rent.

What is the system currently in place?

At the moment, leaseholders of residential flats are able to extend their lease at a rent to the freeholder, sometimes for extremely high charges. The average leasehold has a certain term (such as 85 years). After this term, if the lease is not extended, the property immediately reverts to the freeholder. It is therefore, the leaseholder's responsibility to extend the lease.

Why is it so important to extend your lease?

Shorter leases on a property make them less valuable than those with many years left, and those with leases that are below 80 years are generally avoided. Those properties with shorter leases can be more difficult to get a mortgage on, as mortgage companies feel that its value may decline (therefore wouldn't be good security). These properties with shorter leases can also be difficult to sell for these reasons.

Why has it been hard for leaseholders?

Many leaseholders also pay high ground rent to the freeholder, and combined with mortgage payments, feel that they are paying unnecessary additional costs - almost as if they are paying rent on a property that they own! Freeholders also have the right to increase the ground rent without necessarily offering any added benefit. This can also add to increased admin and costs when buying or selling the property.

What does the change mean?

This new legislation means that both house and flat leaseholders will now be able to extend their lease to the new standard 990 years - and a ground rent at zero. There will also be a cap on ground rent when a leaseholder chooses to either extend their lease or become the freeholder.

Who will this benefit?

Those who dream of becoming homeowners, yet are faced with unnecessary expenses and hurdles to overcome. These changes could benefit millions of leaseholders by saving them tens to thousands of pounds.

What help is now available to leaseholders?

The government will provide an online calculator for all those freeholders who wish to extend their lease by a maximum of 990 years. This simple solution will enable leaseholders to find out easily how much it will cost them to extend their lease, or to buy their freehold.

Other measures in place

The government will still restrict ground rents to zero for new leases, to make the entire process fairer for all leaseholders. This has been in place for a while, and now this will also apply to retirement leasehold properties. Purchasers of these homes will now have exactly the same rights as other homeowners - and are also protected from dishonest business practices.

Existing leaseholders will also be awarded the right to voluntarily agree to a restriction on future development of their property. This will avoid paying any 'development value'.

When will the new legislation be in place?

Legislation will be brought forward to the upcoming session of Parliament, to set any future ground rents to zero. This is the first part of a two-part reforming legislation in this Parliament.

Professor Nick Hopkins, Commissioner for Property Law at the Law Commission said about the legislation:

"We are pleased to see government taking its first decisive step towards the implementation of the Law Commission's recommendations to make enfranchisement cheaper and simpler.

"The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own."

If you have any questions or queries about the new leaseholder legislation, please contact one of the Butler & Stag offices.

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