The proposed reforms will need to be enacted via an act of Parliament and the government is proposing two separate bills, the first to be put through during the current session of Parliament and the second at a later date, yet to be specified.
The proposed changes include:
- The abolition of ground rent on new houses and flats, and this will include properties built for retirement purposes. This will be in the first bill, to be heard during the current session of Parliament.
- Lease extensions on houses and flats (for those who are entitled to extend) will be allowed for a standard period of 990 years – with zero ground rent (currently lease extensions on houses and flats are treated differently).
- The abolition of ‘Marriage value’. This is the potential gain to the leaseholder from extending the lease or purchasing the freehold. It is currently considered when calculating the cost of doing so.
- A cap on the ground rent used in calculating lease extensions and when purchasing the freehold.
- Introduction of an online calculator and setting the calculation of premiums paid to the freeholder.
- The establishment of a ‘commonhold council’, which will be an industry-wide, cross-sector committee that will look at whether and how commonhold can be made fit for purpose. Commonhold is where all of the flat owners work together to buy the freehold of the building that they are in so that each flat owns its own freehold, and a commonhold association owns (and usually manages) the common areas of the building. It is still quite unusual in England.
- A right to agree a restriction on future development of the property by the freeholder so that a ‘development value” premium cannot be charged to the leaseholder.
There have long been calls for revision of the leasehold market, particularly in relation to the differences between leasing houses and flats, as well as other issues such as rent charges. According to HM Land Registry data from 2018, Yorkshire and the
Humber had the second-highest proportion of leasehold house sales, and ONS statistics for the same year show that 25% of the overall property sales in South Yorkshire were leaseholds. Unlike freeholders, who own the property and the land that it stands on, leaseholders own the property, but ownership is for a defined period of time and leaseholders do not own the land on which the property stands. Until these changes come into place, it is particularly difficult – and expensive – to extend a lease, buy the freehold or do anything about escalating ground rents. It is hoped that the proposals will save thousands of pounds for the 4.5 million leaseholders in England.
Caroline Murray, partner and head of Graysons’ property team says:
“This will be welcome news for leaseholders in our region, particularly in Sheffield, where so many properties are held on long leaseholds with ground rents and ground rent ‘escalators’, which create high rents and are increasingly becoming a problem.”
Author: Caroline Murray, partner and head of Graysons’ property team.