New leasehold reform legislation was announced in the King’s speech on 7th November 2023, which could impact leasehold property owners.*
The Government reform aims to make it cheaper and easier for leaseholders to purchase their freehold, extend their lease, take over management of their building and combat excessive service charges.
This reform will be welcomed by many city dwellers – the controversial leasehold system had previously seen some homeowners face extortionate fees for the management of their buildings and ground rents.
So, what does the reform mean for leasehold property owners?
Increased the standard lease extension terms
The King’s speech confirmed government plans to increase standard lease extension terms from 90 to 990 years. This is good news if you own a property/properties with leases that or will soon fall below 80 years. The extension should make it easier to sell and mortgage leasehold properties.
Currently, any properties that fall below 80-85 years are extremely difficult to get a mortgage on and very costly to extend the lease of a property. Buyers are typically put off by properties with short leases. This extension should hopefully make these shorter lease properties more attractive to buyers as they can extend to 990 years once they have bought if they so wish.
At present, the leaseholder is liable to pay for the freeholder’s ‘reasonable costs’ fees – these include reviews, valuations and surveys. To extend the lease can sometimes be tens of thousands of pounds. If this is going to be made cheaper and for a longer time period, this will greatly benefit the leaseholder.
Reduced ground rent
The bill also sets out to reduce ground rent to £0.** This was a payment previously made by the leaseholder to the freeholder under the terms of a lease that was granted in return for a premium. Ground rent would typically vary from a nominal value to a significant amount that increases over the term of the lease. This will save leasehold owners’ money in the long term. The new bill also removes the requirement for new leaseholders to have owned their house or flat for two years before they can benefit from these changes.
Reduced lease extension payments
Costs may also be saved on reduced lease extension payments in the proposed reform bill. The Government has promised the introduction of a statutory calculation to determine the value of the premium a leaseholder pays to a freeholder. This should protect leaseholders from costly and time-consuming negotiations. However, there is currently no formal information about what this calculation might be.
Mixed use developments
Under new laws, residents in some “mixed use” developments will also gain the right to manage their properties. This means properties where up to half of the building is non-residential space such as shops, hotels or offices. There will be an increase to the 25% non-residential limit, which previously prevented leaseholders in buildings with a mix of homes and non-residential spaces from buying their freehold or taking over management of their building.
Finally, the new leasehold reform bill will enforce a ban on building new houses as leasehold in England and Wales. This is welcome news, as houses that are leasehold come with additional expenses with regards to ground rent and services charges. Under new rules, you will be able to own the land the new build property is built on which means fewer charges and less hassle if the leasehold years are running low. However, it’s important to know that this rule will not extend to new build flats.
Seek professional advice
It is imperative for any homeowner to seek professional advice from a Mortgage Adviser when they are looking to buy and sell properties. If you currently have a leasehold property and are looking to extend your lease, or you are looking to purchase a new leasehold property please do get in touch. Our team of advisers will be able to work closely with you to support your specific property needs.
* Oral statement to Parliament The King’s Speech, November 2023
** Ground rent reforms to save thousands for leaseholders, gov.uk November 2023
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