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Government Reforms to Benefit Leaseholders

On 7 January 2021 the Housing Secretary, Robert Jenrick, announced revisions to leasehold enfranchisement laws, which come as part of the biggest proposed reforms to English Property Law in 40 years. Lease Extensions Under the Read more...

Stephen Messias

Senior Director

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On 7 January 2021 the Housing Secretary, Robert Jenrick, announced revisions to leasehold enfranchisement laws, which come as part of the biggest proposed reforms to English Property Law in 40 years.

Lease Extensions

Under the current law, leaseholders of houses and flats have different lease extension rights. Leaseholders have the right to increase their lease term by 50 years for a house and 90 years for a flat. The new reforms will give the leaseholders of both houses and flats the right to a lease extension for a term of 990 years, with no ongoing ground rent under the extended lease.

In relation to this reform, the Law Commission has proposed that landlords’ redevelopment break rights should remain. This would allow a landlord to obtain possession of the property, for the purposes of redevelopment, during the last 12 months of the term of the original lease or in the last five years of each period of 90 years after the commencement of the extended 990 year term. This would ensure landlords still have the ability to terminate the leases of all units within a building at the same time for the building to be redeveloped.

The Enfranchisement Premium

The government intends to introduce measures that would reduce the cost to leaseholders for lease extensions or to purchase their freehold, as well as to make the process more transparent.

Currently, the Enfranchisement Premium is comprised of multiple elements, one of which being “marriage value”. This value compensates the landlord for the value gained by the leaseholder as a result of the transaction (due to the combined leasehold and freehold interests being worth more when held by the same party than when held separately by leaseholder and landlord). These reforms may see marriage value abolished, which will reduce the cost to a leaseholder of extending their lease term or purchasing the freehold.

The government is also considering restricting ground rents to zero for new leases as well as introducing a cap on ground rent payable when a leaseholder extends their lease or purchases the freehold. These measures may also reduce the Enfranchisement Premium in some cases as compensation for the landlord’s loss of future ground rent comprises part of the Premium.

New calculation rates will be set by the government, and an online calculator will be introduced to enable leaseholders to be able to easily find out the cost of extending their lease or buying their freehold.

Commonhold

The government also announced that it will be establishing a Commonhold Council to prepare homeowners and the market for a more widespread use of commonhold.

Commonhold is an alternative to leasehold, and allows owners of flats to own their property on a freehold basis, providing them with greater control. This model is used widely around the world and we expect to see the government introduce further measures to encourage the use of commonhold in time.

Further Reforms

These reforms form the first part of a two-part reforming legislation and in time we expect the government to respond to the remaining Law Commission recommendations, which include:

  • A new right to leaseholders to “buy out” the ground rent under their lease without having to extend the length of their lease.
  • Removing the requirement for leaseholders to have owned their leases for two years before exercising lease extension rights.
  • Allowing flat owners to buy the freehold of a block where up to 50% of the building is commercial space (the limit is currently 25%).

These significant changes to the leasehold enfranchisement laws could benefit many leaseholders of houses and flats in the UK. If you would like to find out more about these reforms and how they may affect you, our experienced team of Real Estate lawyers will be happy to help. Please contact us at enquiries@lawstep.co.uk for more information.

If you would like to discuss any of the topics raised in the above article, please call us on +44 (0)20 7936 8888, email on enquiries@lawstep.co.uk or contact a member of the team below.

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