Leaseholders set to gain new rights

Issues with the current leasehold system, which dates back to the 1800s, have been the subject of public and media scrutiny for many years now. Although leaseholders were given more rights in the Leasehold Reform, Housing and Urban Development Act 1993, which allowed them to extend their lease and purchase the collective freehold, the system is still seen to be very much weighted in favour of freeholders.

Indeed, typing ‘leasehold scandal’ into any search engine will return a plethora of media headlines about leasehold owners trapped in their homes, unable to remortgage, with spiralling costs due to hidden clauses that see ground rent double every 10 years. Others are faced with punitive fees to make changes to their own properties.

Leasehold reforms: a recent history

In December 2017, the government announced its intention to reduce the number of new-build properties being sold on a leasehold basis, a change which came into effect in June 2019.

In July 2018, the Law Commission carried out a review of enfranchisement law (i.e. the legislation relating to buying the freehold of your property or extending your lease), and laid out its recommendations in a series of reports. Its proposals for reform included:

• Reinvigorating ‘commonhold’, i.e., allowing people to own their flat outright with no landlord, as an option for new-build flats
• Improving the enfranchisement process to make it easier and cheaper for leaseholders
• Making it simpler for leaseholders to take over the management of their building without buying the freehold – this is called ‘right to manage’ or RTM

Other suggestions included eliminating leaseholders’ liability for their freeholder’s costs during the enfranchisement process, and giving leaseholders the right to extend their lease for 990 years.

Government proposals promise reform

On 7 January this year, the government set out its plans for reform in response to the Law Commission’s review. The measures come as part of what the government has called “the biggest reforms to English property law for 40 years” and will, it says, contribute to making home ownership fairer and more secure.

The reforms are to be spread across two pieces of legislation, the first of which was introduced to the House of Commons in May 2021 in the form of the Leasehold Reform (Ground Rent) Bill. The Bill focuses on ground rent clauses within future ‘long’ residential leases (i.e. 21 years or more) and will cap ground rent at £0 for these leases (this will not affect current leases). As an enforcement measure, freeholders who continue to charge unfairly will face a fine of up to £5,000.

It is not known when the second piece of legislation will be introduced, but the reforms include:

• The right to extend a lease by 990 years for leasehold houses and flats with no ground rent
• The abolition of ‘marriage value’ (a fee proportionate to the increase in value of a property following a lease extension, if the original lease had less than 80 years left to run)
• An online calculator, which will make it easier for leaseholders to calculate the cost of extending their lease or buying their freehold
• Ensuring that owners of retirement properties have the same rights as other homeowners
• Giving leaseholders the right to buy out the ground rent without having to extend their lease.

The government also launched a new Commonhold Council in May 2021 to review and advise the government on this form of homeownership. The government intends to issue a response to the Law Commission’s remaining recommendations regarding enfranchisement, commonhold and right to manage “in due course” and translate it into law “as soon as possible”.

What next?

If you are looking to extend your lease or purchase your freehold, you may be wondering if it’s worth waiting until the above reforms are enacted before proceeding. The best course of action will depend entirely on your circumstances – for example, the outstanding term left on your lease – and is best determined with the support of a legal professional who specialises in this complex area of the law.

Our enfranchisement team is experienced in assisting leaseholders to assert their rights, is familiar with local properties and freeholders, and can negotiate on your behalf to secure the best possible outcome for you. To get in touch, please contact us on 0203 871 0039 or by email at leasehold@attwaters.co.uk.

Sources:

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

https://www.lawcom.gov.uk/millions-of-leaseholders-to-benefit-from-law-commission-reforms/

https://www.mayerbrown.com/en/perspectives-events/blogs/2021/06/leasehold-reform-ground-rent-bill-published

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

https://www.moneysavingexpert.com/news/2021/01/shake-up-to-make-it-easier-and-cheaper-for-leaseholders-to-buy-t/