Government reforms make it easier and cheaper for leaseholders to buy their homes

On 7 January 2021 in a widely reported press release issued by the Ministry of Housing, Communities & Local Government, the Housing Secretary Robert Jenrick announced widespread intended changes to leasehold law.

In what is described as the first of seminal two-part reforming legislation in this Parliament, legislation to set future ground rents at zero will be brought forward in the upcoming session with further changes to follow. The measures are presented as ‘the biggest reforms to English property law for 40 years’ with the intention to make ‘home ownership fairer and more secure’. The proposals follow through from last year’s Law Commission recommendations on making enfranchisement cheaper and simpler.

Further changes include:

• A new right for leaseholders to extend their lease to a maximum term of 990 years at zero ground rent. This contrasts with the current law which permits a further 90 year term.
• The intention to abolish marriage value. While it is probably inaccurate to talk of the ‘abolition’ of marriage value the effect of this change would transfer 100% of the marriage value to leaseholders. From a landlord’s perspective this is by far the most controversial proposal transferring an estimated £1B of value from landlords’ property interests to those of leaseholders.
• Prescribed calculation rates with the apparent intention to ensure these are ‘fairer, cheaper and more transparent’.
• The introduction of an online calculator to make it easier for leaseholders to ascertain the cost of buying their freehold or extending their lease.
• Discounts for tenants’ improvements and Schedule 10 rights (the right to stay on in your home at the expiration of a lease) are to remain as is the section 9(1) valuation basis under the Leasehold Reform Act 1967 Act. The latter, applicable in enfranchisement claims of houses, is the most beneficial valuation basis from a tenant’s perspective providing for site value alone.

Consistent with its professed desire to reinvigorate commonhold, the government is to establish a Commonhold Council. This is to prepare homeowners and the market for its widespread take up. Since its introduction in 2003 (under the Commonhold and Leasehold Reform Act 2002) commonhold has failed to attract lasting interest in the real estate sector with fewer than 20 commonhold developments created since. Whether this will change now remains for debate.

The proposals are radical and will doubtless meet with strong resistance from landlords who stand to lose the most. This includes, of course, leaseholders who have already exercised their enfranchisement rights, acquired the freehold of their building and have become landlords.

The future ground rent abolition is likely to be implemented swiftly and in the ‘up and coming session of Parliament.’ The timing for enactment of the wider reforms remains unclear but with leasehold lhigh on the political agenda the government may wish to accelerate matters before the next general election. Whether than can be achieved in light of pressing issues on Brexit and COVID-19 remains to be seen.

Click here to view our e-book with guidance on leasehold reform.

By Anna Favre