Law Commission Report recommends major changes to leasehold laws
In July 2020 the Law Commission Report said that the laws around leasehold properties were not working and needed updating as current rules were making some homes ‘unsellable’. The Government has announced that there will be a review of current laws governing leasehold properties in response to the Report’s recommendations.
The main changes to look out for are:
• Allowing those who own the leasehold title to extend their lease by up to 990 years with no ground rent
• Setting future ground rents to zero for (all) new leases
• Providing an online calculator to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease
• Introducing further measures to protect the elderly by making these reforms equally applicable to retirement leasehold properties which was not previously the case
• Abolishing prohibitive costs known as ‘marriage value’ and setting the calculation rates to ensure a fairer, cheaper and more transparent system
• Establishing a “Commonhold Council” made up of representatives from the property industry, leasehold reform groups and the government, to assist in the anticipated uptake in commonhold structures which allow homeowners to own the freehold of their home, with each of the owners managing the provision of common facilities through a commonhold association.
Under current legislation leaseholders of houses can only extend their lease once, for 50 years and subject to a ground rent, whereas the leaseholder of a flat has a very different experience. They can extend as often as they wish at a zero or ‘peppercorn’ ground rent (if extending via the statutory route) or retaining the existing ground rent levels (if extending by agreement with the Landlord) for 90 years. The changes mean both house and flat leaseholders will be able to extend their lease to a new standard 990 year term, with a ground rent at zero.
The proposed changes to ground rent will be brought forward in the upcoming session of parliament. A response to the Law Commission’s recommendations on leasehold enfranchisement, including Commonhold, is expected in due course.
Marriage value is currently calculated as the difference between what the property is worth in its current state with a lease of less than 80 years, and what the value would be with a new lease of over 80 years, and the freeholder or landlord is entitled to a 50% share of that value. Any lease with more than 80 years remaining can be extended without paying marriage value which is why it was important for leaseholders to extend their lease before the remaining term dropped below 80 years. Fortunately, the proposed reforms will remove this concern.
If you are a landlord or a tenant of property currently under a leasehold title and you have any questions about how these changes may affect you, contact Kirstie Forrester in our Real Estate Team who will be happy to help you.