Finance News

Government introduces first leasehold reforms

Rozi Jones
|
7th January 2021
Houses house of parliament commons government govt gov
"These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether."

Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent, the government has announced today.

Under current rules, 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. Today’s changes mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.

The 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. For some leaseholders, these changes could save them tens of thousands of pounds.

A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. 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.

Additionally, the Government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent.

Further measures will also be introduced to protect the elderly. The Government has previously committed to restricting ground rents to zero for new leases to make the process fairer for leaseholders. This will also now apply to retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.

Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.

Finally, the government announced that it is establishing a Commonhold Council - a partnership of leasehold groups, industry and government - that will prepare homeowners and the market for the widespread take-up of commonhold.

Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of a package of reforms recommended by the Law Commission of England and Wales last summer.

In a statement, the government says it will bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.

Housing Secretary Robert Jenrick said: "Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

"We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.

"These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether."

Professor Nick Hopkins, Commissioner for Property Law at the Law Commission, commented: "We are pleased to see Government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler. The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own."

Mark Hayward, chief policy adviser at Propertymark, added: “We have campaigned for years for changes to the leasehold system and event fees on retirement homes. The issue of escalating ground rent on leasehold homes has been a long term scandal which has left many owners trapped and unable to sell their houses. Our research ‘Leasehold: a Life Sentence’ in 2018 found that 46% of leasehold house owners were unaware of the escalating ground rent when they purchased their property. Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap. However, while we welcome the Government’s initiative to reduce ground rents to zero for all new retirement properties, we would argue this needs to be extended to all retirement properties to create a level playing field. Event fees remain a hugely contentious issue which many consumers still don’t understand so we need as much clarity and transparency as possible.”

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