Leaseholders in England and Wales will be given the right to extend their lease by up to 990 years and pay no ground rent under major changes that the government said would save some households tens of thousands of pounds and make homeownership “fairer and more secure”.
The changes follow an outcry several years ago when it emerged some flats and houses had been sold with clauses that meant ground rents would rise dramatically in later years.
Around 4.5m households own their homes on a leasehold basis and pay an annual ground rent to the freeholder of the property – often an investment firm – which, through the lease, grants the right of the homeowner to live there.
Typically they are set at a low “peppercorn” rate but clauses in some new developments stated that rents would double every 10 years, making some homes unmortgageable, and leaving owners unable to move and facing hefty bills.
Currently, leaseholders of houses can only extend their lease for 50 years once and pay a ground rent, while flat owners can do so multiple times with a peppercorn rent for 90 years.
Under the reforms, which were recommended by the Law Commission, both will be able to extend to up to 990 years with a ground rent at zero, and all new retirement properties will be sold without a ground rent.
Extending a lease comes at a cost, but the government said it would change the way these were calculated, including getting rid of costs such as the “marriage value”, which forces the leaseholder to share a potential profit from the extension with the freeholder.
The housing secretary, Robert Jenrick, said: “Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.
“We want 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.”
The Law Commission also proposed the adoption of commonhold ownership as the preferred type of ownership of newbuilds, and the government said it was setting up a council to “prepare homeowners and the market for [its] widespread take-up”.
Under this model, which is popular in other parts of the world but has been used on fewer than 20 developments in England and Wales, blocks are jointly owned and managed, and flats can be owned on a freehold basis.