On 7 January the Housing Minister announced that there will be some significant leasehold reforms for England put before parliament in the coming months. We set out the reasons for the reforms and the key changes we expect them to bring, below.

Background

Whilst those owning flats, maisonettes, apartments etc. are often unhappy with some of the burdens of being a leaseholder, there is a recognition that the freedom and autonomy that benefits freehold ownership would not work in many circumstances where the structure of the building is shared.

The emergence of new build leasehold houses in the last ten years was one of the main reasons for the law commission’s significant review in this area. It was identified that ground rents being paid to freeholder and investors was an additional source of revenue which in many cases could not be justified.

Key changes

Lease extension without ground rent charges

The new proposals will streamline the process of lease extensions. Both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent of zero. This is, in turn, likely to save leaseholders across England a significant amount of money per year. In addition to this, it also offers an escape for those caught by the burdensome escalating ground rent clauses which in some cases double every ten years. Without those ground rent clauses, mortgage companies will be more prepared to lend and the property will become much more attractive for future purchasers.

Online calculation of extension costs

A new online calculator is set to increase transparency and will be available for leaseholders to assess the costs of extending their lease, or buying their freehold. This user-friendly switch will allow leaseholders to plan more readily before committing to the extension and remove some of the associated costs where parties are required to negotiate this value between themselves.

No principle of marriage value

Another key change for the sector will see the principle of marriage value abolished. Marriage value is complex, it assumes that a property is worth more under single ownership (where the party is both freeholder and leaseholder) than separate ownership. It therefore calculates an extra premium to be paid to the freeholder where you are a leaseholder looking to extend your lease or buy the freehold of the property (the latter most often jointly with other leaseholders).

Commonhold Council

The final change is that a Commonhold Council is being set up to lead further reform in this area. It is an alternative structure to freehold/leasehold and is widely used around the world. It involves all of the unit (“flat”) owners also owning the building itself. Perhaps surprisingly it is already available in England but has not proved popular. It is considered that further reform is required to reinvigorate this type of ownership. 

The key principles of commonhold are as follows:

1. Ownership doesn’t run out (no term);
2. No ground rent; and
3. Control collectively with other people who are in a similar position.

It won’t be appropriate in all circumstances but, given there seems to be more of a desire in the market for tenants taking control currently through Right to Manage companies or collective enfranchisement, it seems that the Law Commission still sees this as being a practical solution to many of the existing problems in the sector.

Conclusion and what comes next

It would seem that, despite government’s ever rising list of priorities, the leasehold sector and its topical issues are still very high on that list to be addressed. This emphasis can only be a good thing for leaseholders and possibly the wider residential sector in general.

We are now eagerly awaiting the legislation which sets out the relevant provisions and procedures outlined above. We will update you as soon as the legislation has been published.

How Capsticks can help

Our specialist housing team is working to ensure that we are right beside our clients every step of the way. Our experts are on hand to advise on all aspects of housing management, including leasehold and asset management, landlord and tenancy issues, as well as complex succession disputes, possession claims, ASB, county court injunctions, gas, electrical and fire safety issues, income recovery, disrepair, abandonment, and judicial reviews.

If you have any queries around what is discussed in this insight, or the steps that you can take in any given case, please speak to Kirsten Taylor, or any of your contacts at Capsticks to find out more about how we can help.