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Home » Government announces long-awaited leasehold reform

Leasehold Property Rights
Apartment Block
Jan 11th, 2021

At BLB Solicitors, our goal is simple – to deliver you clear, practical legal advice and cost-effective solutions. We hope you enjoy exploring our Blog. If you can’t find what you’re looking for, please do contact us.

Government announces long-awaited leasehold reform

Secretary of State, Robert Jenrick, has announced the government’s intention to introduce legislation to implement many of the reforms set out in the Law Commission’s reports on leasehold reform, which were published in July 2020. The key change will be a leaseholder’s right to extend their lease by 990 years, with no ground rent payable.

Lease extension

Currently, new leases can be for any term but are typically for 99 or 125 years. When the term of the lease expires, all of the leaseholder’s rights and interests in the property cease and revert to the freeholder. But if the leaseholder meets certain conditions and can raise the money, they can extend their lease by:

  • 90 years for a flat; or
  • 50 years for a house.

Mortgage on a leasehold property

As a general rule, mortgages are available on leasehold properties. However, a lease with less than 80 years left to run is considered a short lease, which will be more expensive to extend. This can significantly devalue the property, making it much more difficult to find a mortgage provider willing to lend on it. Once there are less than 70 years to run, it will be virtually impossible to obtain a mortgage on the property. Should they wish to sell, the leaseholder will be at the mercy of cash buyers looking for a bargain.

You may also like: What is Commonhold?

990-year lease extension

Under the new proposals, a leaseholder will be able to extend their lease to 990 years with no ground rent; effectively a permanent solution. The cost of doing this has yet to be specified, although Mr Jenrick said the amount would be based on a formula which is “fairer, cheaper and more transparent” than that currently used. It is understood that this will include the abolition of “marriage value“, which presently entitles freeholders to add onto the cost of extending the lease, fifty per cent of the increase in the property’s value attributable to the lease extension.

According to website moneysavingexpert.com, the cost of a 90 year lease extension on a flat worth £200,000 is currently between £5,000 and £24,000, depending on the length of the existing lease.

Some have questioned the advantage of these proposals over the current system, arguing there is virtually no difference in the value of a leasehold property with a 990 year lease compared to a 160 year lease. Also, upon payment of compensation to the freeholder, existing legislation enables leaseholders to reduce their ground rent to a “peppercorn” (ie zero). But a spokesperson for the National Leasehold Campaign described the current system as “feudal” and “toxic”, saying:

“We are delighted that government has committed to delivering these reforms in this Parliament and urge them to strongly reject the fierce lobbying and delaying tactics they will get from the sector determined to keep the leasehold gravy train running.”

Timescale

Mr Jenrick announced that ground rents on new homes would be abolished this year. However, he was silent as to when the legislation benefitting current leaseholders might come into force. Certainly, we fully expect “the fierce lobbying and delaying tactics” referred to above, from those currently riding “the leasehold gravy train“, to slow down implementation. Also, let’s not forget that it’s already over three years since the government first committed to reform; even more reason not to hold our breath.

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