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Leasehold reform 2020

 

New build living room with beige furniture

 

Properties in England are most commonly sold as either Freehold or leasehold. A Freehold property is where the property owner owns the building but also the land in which it stands on, where as a leaseholder owns the property but not the land in which it is built on.

 

Leasehold property owners will pay a ground rent to the person or company who owns the land in which their property is built on. Ground rents can be increased at intervals leaving uncertainty for people who own leasehold properties, with the added risk of having to pay this on top of their mortgage.

 

The majority of flats are sold as leasehold properties, in comparison houses are more commonly freehold.

 

Prior to the reform, house leases can be extended by a maximum of 50 years and for flats this was a maximum of 90 years.

 

The current process to extend a lease is complex and expensive. The cost is based on a complex formula and you also have to pay for the lease owners legal costs. Large charges include things such as ‘Marriage value’ to represent the increase in property value from the extended lease.

 

On the 7th of January 2021, the Housing Secretary, Robert Jenrick announced that they would be making changes to the legislation around leasehold properties. The aim of the reform is to make things more secure and fairer for homeowners.

 

The reform gives 4.5 million leaseholders in the UK the right to extend their leases up to 990 years. When the lease is extended the ground rent will be set to Zero.

 

They also plan to cut the cost of increasing leases by removing elements than can be included, so that a simplified transparent calculation is available that will also be published online for people to see what the cost would be for them to extend a lease or purchase a freehold.

 

The government have also set out plans to establish a Commonhold Council, to prepare homeowners and the market for the widespread uptake of commonhold.

 

Commonhold is currently less apparent in the UK market but with the changes coming in this area, this will increase in popularity. Commonhold is where homeowners own their property on a multi-occupancy unit (typically flats). They share the freehold with the other property owners on the unit and through this they also share the responsibility for the common areas and services.

 

The leasehold reform will be through two pieces of legislation. The first will set future ground rents to Zero, although retirement properties will see a delay on this. The future reform will then look at the cost of extending a lease or buying a freehold. The plan is to abolish marriage value, cap ground rents to 0.1% of the freehold value and to give leaseholders of flats and houses the same right to extend the lease to 990 years with the ground rent at zero. There are also plans to enable leaseholders with a long lease to buy out the ground rent without extending the lease to keep the cost down.

 

Although this reform will take time to be put into effect, it will give hope to those people who are currently paying large ground rents and looking at their leases coming towards the end. The changes give homeowners the security of owning their own home without the worry of large ground rent increases and also without large excessive costs to extend their lease.

 

https://commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/

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