Leasehold Reform: What Does it Mean?

Author:
Robert Godfrey
Partner, Head of Professional Negligence and Dispute Resolution
Date:
12/01/2021

The UK Government has announced plans to reform the current leasehold system in England, vowing to put an end to complex leasehold charges.

When you buy a leasehold property, you own the building, but you lease the land it’s built on. You lease the land for a set number of years, known as the lease term. If the lease isn’t extended, your property becomes worthless because you don’t own the land, the freeholder (landlord) does.

The leasehold system has been a subject of controversy for some time. Leaseholders have been subjected to high ground rent charges and permission fees. Many also face challenges extending their lease term, making it difficult to sell their property in the future and the devaluing of their property.

What are the Government Changes?

Transparent charges 

It’s hoped that the changes will make a lease extension a simple and transparent process where the charges are clearer, so leaseholders know exactly how much it’s going to cost them to extend their lease.

No marriage value

The reform will also see marriage value scrapped. Marriage value represents the difference in a property’s value before and after a lease is extended. It’s calculated to reflect any financial loss the freeholder (landlord) will experience as a result of the lease extension.

The marriage value is then factored into the final sum the leaseholder will have to pay to the freeholder to extend their lease.

Currently, freeholders are entitled to a 50% share of the marriage value when their leaseholder gets a new lease. But under the new changes, freeholders will no longer be able to add marriage value to their lease extension costs. Instead, the government will be the one to decide the sum.

Zero ground rent 

Under the new changes, leaseholders will have the opportunity to extend their lease for 990 years. At the moment, leaseholders can only extend their lease by up to 90 years once they’ve owned the property for at least 2 years.

Many leases also come with an annual ground rent, payable to the freeholder and subject to a regular review upwards. It’s not uncommon for freeholders to include a higher ground rent charge when their leaseholder wants to extend their lease.

But the government is hoping to overturn this so that all leasehold flats and houses can be extended to 990 years without any ground rent to pay.

When will the Changes Come into Place?

It’s not yet known how long it will be until these changes come into force.

Robert Godfrey, Partner and Head of Professional Negligence said “We welcome the news that the Government recognise the issues that leasehold property owners are facing,”

“However, for those who are already trapped in onerous leases, it could be years before we see these changes come into place. We have hundreds of clients who have been severely financially impacted by this situation and we are still fighting for a fair outcome for them.”

Simpson Millar has been proudly working in partnership with the National Leasehold Campaign since its launch in 2017.

Katie Kendrick founded the campaign when she first became aware of the leasehold scandal, and she’s been working tirelessly to ban new leaseholds on houses and replace them with a commonhold.

Upon hearing the news about the leasehold reform, Katie told ITV, “It’s a milestone that we really do need to celebrate today and hopefully it’s the start of the end of leasehold.”

Leasehold Claims

If you’ve suffered financially because of an issue with a lease term or an onerous ground rent clause, you could make a No Win, No Fee Leasehold Claim.

We’ve helped leaseholders claim compensation against a Conveyancer or Solicitor who failed to explain issues related to a short lease term or ground rent clause before buying a leasehold property.

Get in touch today for a free initial chat about your situation and one of our Professional Negligence Solicitors will be happy to tell you if you’ve got grounds for a claim.

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