Leasehold Reform: enfranchisement receives a new lease of life
Having finished its consultation on reforms to leasehold law, the Law Commission has made a number of recommendations, and the Government’s Housing Secretary, Robert Jenrick, recently announced new measures with which they hope to bring fairness to the leasehold housing market.
What is the difference between freehold property and leasehold property?
Freehold: this is the ownership of the property and land; i.e. if you own a freehold house, then you own the house and the land it sits on.
Leasehold: this is a form of ownership granted out of the freehold. If you own a leasehold house, then you own the house but not the land it sits on.
What are the current rules on lease extensions?
Leasehold Flats – if you own a leasehold flat for 2 years, you are entitled to apply to the landlord for a lease extension of an additional 90 years and your ground rent becomes a peppercorn; i.e. you pay no ground rent going forward. You will pay a premium which is calculated, together with other factors, in accordance with how many years are left on your current lease. If the lease is below 80 years you pay an additional amount called ‘marriage value’.
Leasehold Houses – if you own a leasehold house for 2 years you may be entitled to apply to the Landlord for a 50 year lease extension. No premium is payable, but a modern ground rent will be introduced to commence after the end of the current lease term; this ground rent can be expensive and is subject to review after 25 years.
What are the changes proposed?
- The right to extend a lease on a house or flat by 990 years at zero ground rent;
- The huge benefit to leaseholders will be the fact that once the lease is extended to 990 years, there will be no requirement to extend the lease again for the foreseeable future; the current legislation enables leasehold flat owners to extend their lease more than once, but leasehold house owners can only extend their lease once.
- The abolition of ‘marriage value’ in the premium calculation;
- The abolition of ‘marriage value’ will ensure a real saving for leaseholders, who have already paid out various costs for their current lease. It must be noted that a premium will still be payable for a lease extension.
- Reducing ground rents to zero for new retirement leasehold properties;
- Many people at retirement age choose to purchase leasehold flats in a retirement complex. Unfortunately, current legislation does not restrict the amount of ground rent payable on these properties, resulting in these homeowners paying increased ground rents on top of a high purchase price. The proposed reforms will be welcomed by these homeowners.
When will the changes be effective?
Legislation is to be brought forward in the next session of Parliament to set future ground rents to zero.
The Government is to provide a response to the rest of the recommendations from the Law Commission in due course.
The Government is to establish a Commonhold Council, comprising of leasehold groups, industry and government to prepare property owners and the market for further take up of commonhold ownership.
Commonhold was introduced in 2004, and enables freehold ownership of flats, with the rest of the building or estate being owned and managed jointly by the flat owners through a commonhold association.
Commonhold has failed to take off, and the establishment of the Commonhold Council is intended to review and address the problems preventing its uptake, or as stated in the Law Commission’s Summary Report dated 21 July 2020 to reinvigorate commonhold.
For more information about any of the above, please email or call our Leasehold Enfranchisement & Management Services team today on 0113 207 0000.