Happy New Year for leasehold property owners

07 Jan 2021

The Housing Secretary Robert Jenrick today (7 January 2021) announced that millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent. This has the potential to save some leaseholders thousands – if not tens of thousands - of pounds.
 
When will these changes come into force?
 
The Government’s press release states that “Legislation will be brought forward in the upcoming session of Parliament” so we can expect further news on this soon.
 
What are the changes?
The Government has called this “part of the biggest reforms to English property  law  for  40 years, fundamentally making home ownership fairer and more secure.”
There are a number of changes but there are four that will likely grab the headlines.
 
1. Ground Rent
 
Currently, many leasehold property owners own leasehold property but have to pay high levels of ground rent that often increase every 5 or 10 years. These payments can escalate to eye-watering figures and when combined with a mortgage, it can make leaseholders feel like they are in fact paying rent on a property they technically own.
 
A distinction needs to be made here between leasehold houses and flats: under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn (zero) rent, however this is not the case for leasehold houses.
 
These 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.
 
Many lenders have been reluctant to lend on leases with onerous ground rents in the past, and the owners of leasehold properties have sometimes had difficulty in marketing their property or in raising the finance to extend their lease.  The reforms should therefore make home ownership more accessible, and cheaper, for everyone. 
 
2. Extended Term
 
Currently, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years. 
 
The Government’s announcement will mean that both house and flat leaseholders will soon be able to extend their lease to a new standard 990 years with a ground rent at zero. The effect of this is that a leasehold property with a newly extended lease will be as close as can be to freehold ownership.
 
3. Valuation
 
The Government wants to make the valuation process more transparent and to that end, they have announced that ‘marriage value’ will be abolished and that the calculation rates will be set to ensure the process is fairer and cheaper. Marriage value is the increase in the value of the property following the completion of the lease extension and reflects the additional market value of the longer lease; it is applied to leases that have less than 80 years to run, often making the process much more expensive.
 
To aid this transparency aim further, an online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
 
4. Commonhold Council
 
The Government has also said it will be establishing a “Commonhold Council”. This will be a partnership of leasehold groups, industry and government, that will prepare homeowners and the market for the widespread take-up of commonhold.
 
The reinvigoration of commonhold as a type of property ownership has been expected for some time and was recommended by the Law Commissionseveral years ago.
 
Commonhold is an alternative to the long leasehold system. It allows an individual to own the freehold of individual flats, houses and non-residential units in a building or on an estate. Unlike leasehold, there is no limit on how long someone can own the property for.
 
The rest of the building or estate which forms the commonhold is owned and managed jointly by the flat owners (referred to as unit-holders) through a commonhold association.
 
All in all, great news for leasehold property owners; not such good news for valuers and landlords.
 
If you have any queries about leasehold enfranchisement and similar matters, please get in touch with our team of experts.
 

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