Leasehold reform: what might change?

Linz Darlington | June 2019

When you extend your lease or buy your freehold, you will have to pay a charge to your freeholder called the premium.

In 2017, the government asked the Law Commission to provide a list of options to reduce this premium and make the process easier too.

What are the changes?

It’s hard to tell which of their options will be chosen, but the government have made it clear that the selected option must also respect the rights of freeholders.

Below are each of the options for the changes, and our thoughts on what might be chosen.

1: A simple formula

A simple formula could make working out the cost of extending your lease a doddle.

The formula likely to be either:

Multiplying ground rent: For example, ten or twenty times your existing ground rent.

Or

Based on the value of your flat: For example, one or two percent of your flat’s value.

Is this a good thing?

A simple formula is great for many leaseholders, particularly those with short-leases but low ground-rents. For people in flats with high-ground rents or fancy flats, it might make a lease extension more expensive.

Will it be accepted?

Unsurprisingly freeholders are campaigning hard against a simple formula. In most cases it will leave them out of pocket.

We don’t think it is likely this option will be chosen because it’s not good for freeholders and disadvantages some leaseholders too.

2: Removing the expensive bit

If the lease of your flat drops below 80 years you are hit with an extra charge you have to pay to your freeholder. This is called ‘marriage value’ and it can run to thousands of pounds. One option is to completely get rid of this part of the calculation.

Is this a good thing?

It’s an excellent thing. If you live a flat with fewer than 80 years remaining, this would significantly reduce the premium. No leaseholders would be disadvantaged by this change.

Will it be accepted?

Maybe. Freeholders are not going to like this one, but it is possible that the government will feel it provides a reasonable solution for both sides.

3: Making the existing approach simpler

The existing approach for valuing a leasehold is quite complex. The calculation is based on figures that are hotly contested during almost every lease extension.

The government are suggesting setting some of these figures in stone so they’re no longer a point of debate. While doing so they would choose figures that are favourable for leaseholders.

Is this a good thing?

Yes, in the sense that it has the potential to make things cheaper for leaseholders. The risk is that the figures will be a compromise. So it isn’t likely to be the radical change we and many leaseholders would like to see.

Will it be accepted?

Quite possibly. It’s a way to strike the balance between making things cheaper for leaseholders while still respecting the rights of freeholders too.

When can we expect the changes?

The Law Commissions initial survey into leasehold reform closed in January 2019, and they said at the time it was unlikely we’d see any changes to legislation before 2020.

Considering any change would need to be passed through the UK legal system, 2021 seems more realistic!

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