The leasehold system has long been a subject of contention in the real estate world, particularly in the United Kingdom. The issues surrounding lease extensions, high ground rents, and onerous lease terms have left many leaseholders feeling trapped and uncertain about their property's future. In response to these concerns, the UK government has proposed a series of reforms aimed at addressing these issues.
Our Commercial Trainee, Shahar Sadat, reviews the proposals ahead of the legislation being debated in Parliament.
Understanding Leasehold Reform
Leasehold ownership, a system where individuals own a property for a fixed period (the lease), has often been criticised for various reasons, including:
- Short lease terms
- High ground rents
- Unfair charges
The leasehold reform aims to address these issues and provide leaseholders with more security and control over their homes.
Under the current Leasehold Reform, Housing and Urban Development Act 1993 (‘LRHUDA’)
A tenant/leaseholder is able to qualify for a lease extension by statute provided they have been in occupation of the leasehold property for a minimum of 2 years.
A valuation would be done to obtain a figure for submission of a notice under Section 42 of LRHUDA.
The figure for the lease extension will be based on a number of factors such as the value of the current freehold and leasehold and loss of such value of the freehold and rent once the extension is granted and where a lease has less than 80 years remaining a ‘marriage value’ aspect is also introduced to the valuation which can significantly increase the valuation figure.
Once the s42 notice has been drafted and served, the landlord has two months from the date of service to accept/deny the claim for lease extension and the Landlord may propose some of their own terms to the extension subject to the provisions within the Act.
Currently the standard terms of the lease extension are the grant of an additional 90 years on top of the remaining term of the lease and any ground rent to be reduced to a peppercorn rent.
The Key Proposals of the New Leasehold Reform
Whilst we need to wait and see what for the Bill is likely to be take, some key proposals include:
- Ban leaseholds for all new houses
- Lease extensions to 990 years:
- Ground rent abolition: Ground rents on all existing leasehold properties to be capped. Ground rents for new properties sold since June 2022 are already capped.
- Marriage value could be removed from the premium calculation which should reduce the unexpected surprises leaseholders often face when extending a lease that is a fair number of years below the 80-year mark.
- Simplified lease extension process
- Right to manage: Leaseholders are granted more power in managing their properties, including the ability to take control of the management of their building.
- Commonhold: The government is actively promoting the commonhold system, an alternative to leasehold, which offers shared ownership of the building and gives residents more control.
Benefits for Leaseholders
The new leasehold reform offers several benefits to leaseholders:
- Long-term security
- Financial relief
- Easier lease extensions.
- Enhanced control
Time Scale for Reform to Take Place:
Michael Gove, the Secretary of State for Levelling Up, Housing, and Communities in the United Kingdom, has expressed his aspiration to introduce a Leasehold Reform Bill during the final parliamentary session of this Government, set to commence this Autumn on November 7, 2023. The use of the word "hope" in Gove's commitment to reforming leasehold suggests that the Government's stance on this matter remains somewhat uncertain.
The bill is now expected to be included in the King's Speech on November 7. Subsequently, it must be introduced either in the House of Commons or the House of Lords.
Upon this occurring, the bill undergoes scrutiny and needs to be agreed by both houses before it eventually becomes law.
Sweeney Miller Law’s Enfranchisement Specialists
The new leasehold reform for statutory lease extensions represents a significant step toward creating a fairer and more transparent system for leaseholders. It offers them the security and financial relief they need to enjoy their homes without fear of uncertain lease terms or exorbitant charges.
However, it is likely to be some years before the bill (once passed) becomes law and in the meantime, leaseholders will still come up against situations that necessitate a lease extension. For advice and guidance on lease extensions contact Sweeney Miller Law’s expert leasehold enfranchisement team on 0345 900 5401 or email firstname.lastname@example.org.