Robert Jenrick, the Housing Secretary announced on 7 January 2021 that the Government will implement two stages of reforms which will make it cheaper and easier for some leaseholders to extend their leases.
This is welcome news and must be credited to the campaigning of Leasehold Knowledge Partnership and the National Leasehold Campaign.
This article provides our thoughts on how this news will impact the cost of lease extensions and freehold purchases for owners of flats.
The changes will come in two stages:
Stage 1: Banning New Ground Rents
What does it mean?
New flats and houses will not have ground rent and all new leases on existing properties should also not have ground rent.
Frustratingly, this doesn’t mean that owners of properties that already have ground rents will no longer have to pay them.
This is enacting a promise first made by Sajid Javid, the then Communities Secretary, in 2017.
Who will it benefit?
This will benefit anyone who is purchasing a new property.
It will also mean that anyone extending their lease on an existing property will not pay ground rent – which is what is already on offer for lease extensions using the current legislation.
When will the change happen?
This change will be “brought forward” for the “upcoming session” which presumably means that it will be discussed between Spring 2021 and Spring 2022.
Stage 2: Wider Leasehold Reform
What does it mean?
The Law Commission has recommended a number of changes which should make it cheaper and easier for people to extend their leases. The Government have promised to implement some of these changes.
Who will benefit?
Assuming the changes make it into law "as promised":
Lease Length: Anyone who is extending their lease will benefit slightly by increasing it by 990 years, rather than 90.
However, this change isn’t quite as grand as it sounds – the difference in value between a flat with a very long lease and an almost indefinite lease isn’t significant.
Marriage Value: The Government has committed to removing “Marriage Value” which is a fee charged when extending leases already below 80-years. This could have a significant impact on leaseholders in this situation – in some cases tens of thousands of pounds.
Capping Ground Rents: When you extend your lease – and reduce your ground rent to £0 – you essentially “buy out” your ground rent. You pay a price to do this. The government have promised they will "Cap" this charge, but without specifying what the cap will be. It is likely to benefit leaseholders with ground rents that are high or increase at frequent intervals.
Making the process simpler: This will benefit everyone and is fantastic news!
When will it happen?
More widespread changes which “bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.”
These changes are complex and are likely to be heavily contested by lobbying from the freehold industry.
At the end 2018 we attended an event where Nick Hopkins at the Law Commission said he did not expect reform to be in 2019. It's now 2021.
Realistically we expect these changes will still to be some years away. One of the reasons the Government are implementing the process in two stages is because they know how long it will take to implement the changes included in Stage 2.
I want to extend my lease: Should I wait for this change before doing so?
The short-answer is: if your lease is currently above 80 years and you do not have a high ground rent then there is limited benefit in waiting - the changes probably wont significantly affect you.
If you have a lease already below 80 years or you do have a high ground rent then it may well be worth waiting - but read our article on this very topic.