Lease extension solicitors summarise Government leasehold reform announcement

In response to the Government's press release, lease extension solicitors at Holmes & Hills publish the following summary.

At the time of writing, the Government’s press release was available here: https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes

Background

On 7th January 2021 the UK Government issued a press release relating to proposed changes in legislation concerning the rights of leaseholders, in particular proposed legislation relating to leasehold enfranchisement (purchasing a freehold interest or extending a lease).

Over the past several years, at the request of the Government, the Law Commission has undertaken a consultation on leasehold property ownership and on 21st July 2020 published several reports. One of the reports, titled ‘Leasehold home ownership: buying your freehold or extending your lease’ dealt with issues alluded to in its title.

The Law Commission report is 860 pages in length and made a wide range of recommendations for reforms of legislation covering leasehold property ownership. Publication of such a report does not in any way guarantee that any of the recommendations made within it will become law, or if they were to become law, the final scope of the changes or the timescales for this to happen.

Proposed changes

The Government issued press release of 7th January 2021 suggests that the Government will be looking to put several of the recommendations made by the Law Commission to Parliament, albeit in stages. It is suggested that the Government will propose legislation aimed at:

i) Providing owners of leasehold flats and houses with the right to extend their lease up to 990 years with there being zero ground rent during the term. This compares to the current statutory right of owners of leasehold flats to add an additional 90 years to the existing term with there being a peppercorn (£nil) ground rent imposed for the entire term of the lease. Currently owners of leasehold houses have the statutory right to add an additional 50 years to the existing term with there being a (higher) modern ground rent applicable to the additional years.

ii) Setting the calculation rates of Premiums (the amount paid by the leaseholder to the freeholder) and introduce an online calculator ‘to ensure this is fairer, cheaper and more transparent’. Currently, calculations and calculated Premiums can be disputed or argued by surveyors acting for the leaseholder and the freeholder. The setting of a stipulated calculation may provide for reduced professional fees in future if it means surveyors are no longer required to provide a valuation to, or negotiate on behalf of, leaseholders and freeholders.

iii) Removing the payment of ‘Marriage Value’, a material part of the calculation of the Premium for a lease extension of a flat where a lease term has fallen below 80 years remaining. This will also impact Premiums payable where leaseholders are purchasing a freehold where leases within the freehold have less than 80 years remaining or are close thereto.

iv) Capping the ground rent will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder.

v) Restricting ground rents to zero for new properties, this also now proposed for retirement properties.

Timing

The Government's press release states "Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in this Parliament."

It is Holmes & Hills’ understanding that:
- The 'upcoming session of Parliament' is to mean spring 2021 - spring 2022
- 'This Parliament' is to mean any time up to the next General Election, expected to be
held in May 2024.

Therefore, Holmes & Hills Solicitors understands this Government statement to likely mean that changes to legislation concerning ground rent matters, namely zero ground rents on new-build properties and (potentially also) zero ground rents on leases extended via the statutory process, will be put to Parliament between spring 2021 and spring 2022. There will be a process of debate and refinement before any legislation is changed which may mean that changes to legislation concerning ground rent will not become law until later sessions of Parliament.

It is Holmes & Hills' understanding that the Government's statement also means that changes to legislation concerning other matters mentioned in the Government’s press release (such as 'Marriage Value'), which are not referenced as being brought forward in the upcoming session of Parliament, are likely to be put to Parliament for debate during the Parliamentary sessions of either spring 2022 - spring 2023 or spring 2023 - spring 2024.

Holmes & Hills understands from the press release that the Government is proposing that new legislation dealing with its proposed changes to leaseholders’ rights will be forthcoming by May 2024, the likely date of the next General Election. Debate, Parliamentary process and keen interest from a wide range of heavily invested stakeholders- freeholders and institutional investors included - may mean that the Government is not able to pass all of the legislation it desires before the next General Election, or that proposed reforms to leaseholder rights are ‘watered down’ to allow new legislation to pass before the next General Election.

Lease extension Premiums

Click to read an article from Holmes & Hills' lease extension solicitors regarding Premium calculations in light of the proposed leasehold reforms: 'Lease extension solicitors comment on Premiums calculations in light of proposed leasehold reform'