Leasehold properties are back in the news again, following the government’s announcement that it plans to clamp down on high costs when homeowners attempt to extend their lease.
The issue has been in and out of the press numerous times, as respective leaders have promised to improve the system, which can include penal ground rents, service charges and costly lease extensions.
These measures are some of the biggest reforms to English property law for 40 years and look to make homeownership more secure.
I am considering buying a leasehold property, how will the government’s reforms benefit me?
Unlike freehold properties, leaseholders do not own the land their property sits on. Instead, they are subject to a lease, which can typically range from 99 to 999 years.
Your lease can be extended at any time through negotiation with the freeholder, but part of the fee for doing so is called the ‘marriage value’ and it represents the expected rise in your property’s value once the extension is granted. Unfortunately, it can be difficult to determine and the costs applied can be excessive in some cases.
Under the government’s new plans, influenced by recommendations from the Law Commission, the marriage value will be scrapped. It is hoped this will also reduce the cost of buying your freehold interest, as it is, again, used when calculating the purchase price.
The new legislation proposes to give property owners the right to extend their lease by 990 years at zero ground rent and to cap payments if you choose to extend your lease or buy the freehold interest.
Currently, it is only possible to add 50 years to the lease on a house and often, it triggers a ground rent increase. At the moment, owners of flats can extend as many times as they want at zero ground rent, but only for 90 years.
A new online calculator is being proposed to give homeowners an indication of the costs involved before they proceed with a lease extension or purchase of the freehold interest. Further measures are expected to restrict the ground rent to zero on new leases, to ensure elderly people in retirement properties enjoy the same rights are other leaseholders.
Are there any alternatives to leasehold properties?
There is a method of property ownership called ‘commonhold,’ which is halfway between leasehold and freehold. It is seen as a much fairer system but is very rarely used.
The government has announced it is putting together a Commonhold Council, comprising a partnership of leasehold groups, to prepare homeowners for what it hopes will be the widespread uptake of commonhold properties.
The proposal to set future ground rents at zero is about to be brought before parliament, in the first stage of this seminal two-part reforming legislation. The government wants to move forward a response to the remaining Law Commission recommendations, including commonhold, in due course.
If you would like advice on purchasing a leasehold property or extending a lease, please call us on 01922 639080.
About the Author, Rebecca Turner.
Rebecca joined Walker Solicitors as an Estate Agent in 2008, then moved to the Conveyancing team in 2011
Associate Director, CILEx.
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