The reforms, announced this week, will give millions of leaseholders the right to extend their lease by a maximum of 990 years at zero ground rent.
A cap will be introduced on ground rent payable when a leaseholder chooses to extend or become the freeholder, with an online calculator made available so leaseholders can assess the potential cost.
Costs such as ‘marriage value’ (increase in value for the leaseholder once the lease is extended), will be abolished, the Department of Housing, Communities & Local Government said. Leaseholders will be given the option of voluntarily agreeing to a restriction on future development of their property to avoid paying ‘development value’.
Zero ground rents will be extended to retirement leasehold properties―in 2019, the government committed to restricting ground rents to zero for new leases.
Currently, leaseholders can extend at a zero ‘peppercorn’ ground rent, but usually only for 90 years. They can face high charges to extend and, for house owners, barriers to extension. Other problems encountered by leaseholders include diminishing value of their property as the lease nears expiry and restrictions in the lease such as a ban on pets.
The government said legislation implementing the reforms would be introduced in the upcoming session of parliament, the first of a two-part series of property reforms, and it would respond to the Law Commission’s recommendations on commonhold in due course.
It is also establishing a Commonhold Council of leasehold groups, industry and government, to prepare the market for the widespread take-up of commonhold.
Natasha Rees, partner at Forsters, said the government had ‘opted for the more extreme end of the Law Commission's proposals which will upset landlords who stand to lose significant sums on their property portfolios as a result of the changes.
‘The government is proposing to abolish marriage value and fix the rates that apply when calculating the enfranchisement premium which will drastically reduce the amount a leaseholder has to pay when extending a lease or purchasing the freehold. The proposed reforms will also give significant comfort to leaseholders who are subject to onerous ground rents.
‘Once the legislation is passed, they will be able to extend the lease of their house or flat for 990 years at a peppercorn (nil) rent. Clearly there is more time now that Brexit has been concluded to push through the proposed reforms but given that significant changes will be required to what is very complex legislation it is likely to take at least a year before this happens.’
The Law Society welcomed the announcement, but warned there must be incentives for developers, lenders and buyers for commonhold ownership to flourish. President David Greene said leasehold reform was ‘complex’.
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