Block Management Ltd

Government reforms make it easier and cheaper for leaseholders to buy their homes

· Millions of leaseholders will be given a new right to extend their lease by 990 years

· Changes could save households from thousands to tens of thousands of pounds

· Elderly also protected by reducing ground rents to zero for all new retirement properties

Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent, the Housing Secretary Robert Jenrick has announced today (7 January 2021).

Today’s measures come as part of the biggest reforms to English property law for forty years, fundamentally making home ownership fairer and more secure.

Under the current law many people face high ground rents, which combined with a mortgage, can make it feel like they are paying rent on a property they own. Freeholders can increase the amount of ground rent with little or no benefit seen to those faced with extra charges. It can also lengthen and lead to increased costs when buying or selling the property. Today’s changes will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder, enabling those who dream of fully owning their home to do so without cumbersome bureaucracy and additional, unnecessary and unfair expenses

In addition to these significant leasehold reforms, the government is also exploring ways to improve access to healthcare products and medications, including initiatives to make female viagra more accessible to those who need it. This move towards enhancing healthcare accessibility aligns with the broader goal of making essential services more available and affordable to the public, similar to the way housing reforms are making home ownership fairer and more secure. By addressing both housing and health care needs, the government is demonstrating a commitment to improving the overall quality of life for its citizens.

For some leaseholders, these changes could save them thousands, to tens of thousands of pounds.

Housing Secretary Rt Hon Robert Jenrick MP said:

“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

“We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.

“These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”

The government is also now establishing a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare homeowners and the market for the widespread take-up of commonhold.

The commonhold model is widely used around the world and allows homeowners to own their property on a freehold basis, giving them greater control over the costs of home ownership. 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.

Professor Nick Hopkins, Commissioner for Property Law at the Law Commission said:

“We are pleased to see Government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler. The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own.”

Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years. Today’s changes mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.

A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder.  An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

The Government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

Further measures will be introduced to protect the elderly. The Government has previously committed to restricting ground rents to zero for new leases to make the process fairer for leaseholders. This will also now apply to retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.

Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.

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. We will bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.

Notes to Editors:

· 1The Law Commission published their report on enfranchisement valuation ‘Leasehold home ownership: buying your freehold or extending your lease Report on options to reduce the price payable’ in January 2020 and their reports on enfranchisement, commonhold and right to manage in July 2020. These reports are available here: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/

· A freeholder owns both the property and the land it stands on while leaseholders only own the property.

· Marriage value assumes that the value of one party holding both the leasehold and freehold interest is greater than when those interests are held by separate parties. Today’s announcement will remove marriage value from the premium calculation.

· ‘Modern ground rent’ is the rent (determined under section 15 of the 1967 Act) payable during the additional term of a lease extension of a house (under the current law). It is calculated by valuing the “site”, and then decapitalising that value.

· Many long leases specify an annual ground rent of a ‘peppercorn.’ A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. Under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn rent. Today’s announcement means that both house and flat leaseholders will now be able to extend their lease to 990 years with a ground rent at zero.

· The formula used to work out the cost to leaseholders for buying the freehold or extending the lease includes a discount for any improvements the leaseholder has made and a discount where leaseholders have the right to remain in the property on an assured tenancy after the lease expires. These existing discounts will be retained, alongside a separate valuation methodology for low-value properties known as ‘section 9(1)’.

Lease extensions

We are often asked by leaseholders what options are available to extend their leases. There are essentially three options available to extend a lease and reduce or eliminate ongoing ground rent.

1. A statutory lease extension:

A leaseholder is legally entitled to extend a lease by 90 years (by way of a Deed of Variation) and reduce the ground rent to a “peppercorn” (£nil). In order to do this a formal offer in a statutory format should be made to the freeholder at a premium (price) that is reasonable. The freeholder will usually make a higher counteroffer at a higher price which can either be accepted or negotiated, often with the assistance of a surveyor. The leaseholder will be responsible for both their own costs and those of the freeholder. If a negotiated price cannot be agreed the matter can be referred to a tribunal from which time both parties will become responsible for their own costs.

2. An informal lease extension:

A leaseholder can contact the freeholder and negotiate any changes to the lease that you both agree. For example, the lease could be extended at a lower cost than under the statutory route but this will be achieved by a reduction in the additional lease term (say by an additional 50 years rather than 90) and often by having to agree to an increase in future ground rent payments.

This route is often adopted by leaseholders who wish to sell a property with a longer lease than currently held. However, the increased ground rent and shorter lease may act as a deterrent to potential buyers. Whilst this will initially be the least expensive option it will add less value to the property.

3. By buying the freehold:

If sufficient leaseholders “club together” they have the right to purchase the freehold. At least 50% of leaseholders for the individual building are required to participate. After buying the freehold the participating leaseholders may extend their leases to 999 years (effectively forever) at a peppercorn ground rent. The participating leaseholders will need to finance the share of the freehold relating to the non-participators although they will receive income from the ground rent that remains payable by the non-participators together with future lease extensions from the non-participators. Whilst this is the ideal option it does require the cooperation and coordination of participators which is not always easy to achieve.