finance

Millions set to benefit from leasehold property reforms


Millions of leasehold homeowners will be given the right to extend their leases to 990 years with zero ground rents under major government reforms to English property law. 

Robert Jenrick, housing secretary, announced plans on Thursday to bring forward legislation to tackle “cumbersome bureaucracy and additional, unnecessary and unfair expenses” affecting up to 4.5m leasehold owners.

The leasehold system, which has its legal roots in feudal England, has become a source of growing contention as property owners have faced high ground rents and punitive costs for extending a lease or buying out a freehold. 

Freeholders may increase ground rents without offering any benefit to leaseholders, which can lead to difficulties when the home is sold. Some developers of leasehold homes resold the rights to collect the ground rents to investors, on terms where rents would double at regular intervals. 

“Today’s changes will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder,” the government said.

Under the current law, leaseholders of houses can only extend their lease once for 50 years with a ground rent, but leaseholders of flats can extend as often as they wish at a zero ground rent for 90 years. The plans mean both house and flat owners will be able to extend their lease to 990 years — and an online calculator will give leaseholders an idea of the costs of buying their freehold or extending their lease. 

Mark Hayward of Propertymark, which represents estate agents and letting agents, said: “The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses. This new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”

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The government said the reform could save leaseholders tens of thousands of pounds in costs.

The reforms include recommendations made last year by the Law Commission in a report on leasehold law in England and Wales. One is that commonhold could be made the standard alternative to leasehold, allowing flat owners to own their properties on a freehold basis and give them the right to joint ownership and management of a block of flats. 

To do this, the government will create a “commonhold council” of leasehold groups, industry and government to prepare people for “the widespread take-up of commonhold”. 

The practice of adding “marriage value” to the costs of lease extension or freehold purchase is also to be abolished. If a lease has less than 80 years to run, landlords can currently ask leaseholders to pay 50 per cent of the expected uplift in the property value, on the grounds that the leasehold and freehold interests are worth more when held by one party than when held separately in the hands of a leaseholder and landlord.

The government will determine the calculation of costs, rather than leave it to a negotiation between leaseholder and landlord. 

Legislation on ground rents is planned for this parliamentary session, with further legislation on commonhold expected “in due course”. Kerry Glanville, partner at law firm Cripps Pemberton Greenish, said that the government’s decision to make space in a crowded legislative calendar showed its determination to press ahead with leasehold reform. “Clearly the government has got the bit between its teeth on this.” 

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As a result, though, many leaseholders considering a lease extension or freehold purchase are more likely to wait. “Those contemplating making a claim may put it off until they see the details of the legislation,” Ms Glanville said.

Natasha Rees, partner at law firm Forsters, said: “Given that significant changes will be required to what is very complex legislation, it is likely to take at least a year before [the proposed reform] happens. In the meantime, leaseholders are likely to bide their time.”

The government said it would also extend the restrictions on ground rent to new retirement homes. Mr Hayward of Propertymark welcomed the move, since retirement homeowners often failed to understand the impact of “event fees” — chargeable on events such as selling or subletting — on the costs of owning their home. 

The retirement home sector attacked the proposals, arguing the decision would push up purchase prices to fund the extensive communal areas required in retirement developments.

Spencer J McCarthy, chief executive of Churchill Retirement Living, said he was disappointed that the government had reversed an earlier recommendation to give the retirement housing sector an exemption from the ground rent ban. 

“At a time when our business already faces a mountain of challenges to continue keeping people safe from Covid-19, this abrupt last-minute change of heart from government will seriously impact our ability to provide older people across the country with the specialist housing they need.”



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