16 April 2021
The Government plans to reform the leasehold system which will make it cheaper for around 4.5 million leaseholders buy their freehold or extend their lease.
Lisa Rigby, who is a Licensed Conveyancer, in the Residential Property team at Phillips, said the proposals follow from when the Government asked the Law Commission to look at simplifying the process and provide better deals for leaseholders, amid widespread controversy about escalating ground rents and high charges from freeholders.
Lisa said: “Many people are describing this reform of the leasehold system in England and Wales as the ‘biggest shake-up of property law in 40 years’.”
What is the difference between a freeholder and a leaseholder?
A freeholder is person who owns a property and the land it stands on, whereas a leaseholder owns a lease, which gives them the right to use the property. If they want to make any changes to their home, they have to ask for their landlord’s permission.
Lisa said: “When someone buys a leasehold property, they don’t possess it outright, but instead they gain the right to occupy it for a set number of years. This is often between 99 and 125 years and occasionally up to 999 years.”
Leaseholders are able to extend their lease and even buy the freehold, but invariably this can be a complicated process and is expensive. On top of this, it can sometimes be more difficult to sell a leasehold house.
“A leaseholder can apply to extend their lease with their freeholder who will negotiate a fee,” said Lisa. “Part of this fee is what we call ‘the marriage value.’ This represents the increase in the value of the property once the lease has been extended, enabling the freeholder to benefit from a share of the possible future increase in value of the property.”
What are the proposals?
An important part of the proposed reform will give leaseholders the opportunity to extend their lease for 990 years. One of the aims of this is to reduce the difficulty in selling a property. At the moment house leaseholders can only extend their lease once for 50 years with a ground rent, whereas leaseholders of flats are able to extend their lease as they like at a zero-ground rent for 90 years.
The government wants to allow both house and flat leaseholders to be able to extend their lease to a standard 990 years with the ground rent set at zero.
Other proposals include a cap on the cost of the ground rent when a leaseholder extends their lease or purchase the freehold.
It is also looking at abolishing the marriage value and reducing the rates used to calculate the costs of extending a lease or buying the freehold.
The plans include leaseholders being able to voluntarily agree to a restriction on future development of the property in order to avoid paying ‘development value’ in respect of alterations and improvements made to the property by the leaseholder.
Zero ground rent is also planned for purpose-built leasehold retirement properties.
In addition, the Government hope to introduce an online calculator to allow leaseholders to find out how much it will cost to extend their lease or purchase their freehold.
Broadly welcoming the proposals, Lisa said: “If these go ahead many leaseholders could save thousands of pounds and it will make owning and selling a home easier and fairer for millions of people.”
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This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.
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