02 Feb 2022
As of January 25 2022, the Leasehold Reform Bill has passed through both houses of Parliament and is on the verge of becoming law.
Forming the first part of ‘ground-breaking’ legislation being brought forward in this Parliament to reform the leasehold system, the Bill focuses on ground rent clauses within future long residential leases.
Ground rent (in excess of one peppercorn per year) can no longer be demanded as part of a new residential long lease, meaning future leaseholders will not be faced with financial demands for ground rent. Administration fees for collecting a peppercorn rent are also banned, with fines of up to £30,000 for freeholders that charge ground rent in contravention of the Bill.
Forthcoming steps in these, the largest property reforms in 40 years, aim to give millions of leaseholders the right to extend their lease to a standard term of 990 years at zero ground rent, saving them thousands to tens of thousands of pounds. Currently, only extensions to 90 years are possible, often at considerable cost.
The planned reforms aim to make homeownership fairer and more secure, tackling the issue of leaseholders paying high ground rents along with a mortgage, as if they are paying rent on a property they own. Historically, freeholders can increase ground rent with little benefit seen by leaseholders, along with adding costs when buying or selling the property.
A Commonhold Council, comprising a partnership of leasehold groups, industry and government, is charged with preparing homeowners and the market for the widespread take-up of commonhold. Widely used globally, the commonhold model allows homeowners to own their property on a freehold basis, giving them greater control over the costs of homeownership. Blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too.
Back in 2019, our publications backed the Abolish Leasehold petition in favour of Commonhold, which soon garnered a response from the government.
Nina Harrison, London specialist at Haringtons, says this first stage in impending leasehold reform is ‘most welcome’. “We await with interest how the second stage develops in the coming years, and the extent to which it addresses negative aspects of the current leasehold system, while taking account of the benefits it can provide,” she comments.
“Of course, not every freeholder is a millionaire: many thousands of regular people own freeholds all over the country; some have good relationships with the leaseholders, some do not. Certainly, reform which remedies bad practice is most welcome: a poorly maintained building hurts leaseholders in the pocket as much as in their day-to-day life, easily putting buyers off, however wonderful their flat is.”
Harrison further explains that while freeholders’ actions have succeeded in maintaining the look and feel of entire neighbourhoods, the current leasehold system proves ‘very off-putting’ to overseas buyers and investors.
“All too often, they do not understand why, when they’ve bought a property, they don’t own it forever – nor do they own the building it sits on, the ground below or the air above,” she continues. “Add in that the shops, pubs, communal gardens, the building itself and those around it may all be owned by the same aristocrat, and it is not hard to see why the system is frequently characterised as a feudal anachronism.”
“Further reform in coming years should enable leaseholders to extend their lease without the requirement of negotiations with the landlord. Currently, this is frequently a slow process, and leaseholders have to pay the freeholder’s legal costs as well as being subject to marriage value, whereby if the flat is under 80 years old, a leaseholder has to share the uplift in value of the flat on a long lease with the freeholder.”
However, Harrison says there will always be a need for some form of arrangement where dwellings form part of a shared building in order to ensure reasonable conditions prevail, regarding loud music, hanging out of washing, satellite dishes, maintenance arrangements etc.
“Accordingly, we will watch with interest the expected application of the commonhold concept in the following stage of reforms. Widely used globally, the commonhold model allows homeowners to own their property on a freehold basis, giving them greater control over the costs of homeownership, while blocks are jointly owned and managed.”
She goes on to say: “A common frustration I see being ironed out is when a top floor flat owner wants to build into the attic. Currently, if that space isn’t formally demised to the flat and it’s owned by the freeholder then it seems very unfair that the freeholder typically insists on a share in the uplift in value of the flat, or refuses to sell.”
“Without a freeholder, this space would belong to the other owners of shares in the freehold and the negotiations would be done with them. In the meantime, my advice for a leaseholder (born of personal experience) is to get the loft space demised as soon as possible, rather than wait for the reforms.”
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