HM Government Leasehold Reform
One of the biggest issues in recent years has been the inclusion in lease contracts of escalating ground rents – sometimes even doubling every ten years. These hidden terms have generated enormous profits for unscrupulous freeholders, while trapping leaseholders in virtually unmortgageable and unsellable flats and houses.
On 11th May 2021, The late Queen’s Speech included plans for much needed reform of the Leasehold system. An initial bipartisan bill “The Leasehold and Freehold Reform Act 2024 was included in the “wash-up” period from the outgoing Conservative government and is being developed up by the current Labour government.
The government admits that serious flaws remain in the legislation including the valuation proposals, which must be rectified before bringing the Act in to force. Until then we remain in a state of limbo….
Ground Rent
The key change will be to remove “Ground Rent” from all new (most) Leasehold contracts. Most leaseholders have already had a statutory right to a nil ground rent for some years – when extending their lease through the official “Section 42” process, – but this will now apply to informal lease extensions too, as well as to leases in new leasehold properties.
Controversially, this is not all as perfect as it seems.
For leases with existing ground rents, lessees have to continue to pay these for the unexpired term until the new term begins!
Discussions continue on how best to resolve this. – in particular for leases with escalating ground rents – possibly by capping future ground rent rises, which would make properties mortgageable again.
Without Ground Rent, once a lease is agreed, there will be no additional costs until it needs extending once again, and with much longer contract terms nowadays, this likely means nothing to worry about for 100 years into the future.
On the flip side, without the benefit of an annual Ground Rent, Freeholders will certainly expect to increase the cost of any extension or amendment to maximise the profit return on their investment.
Updated position
On 21 November 2024 the Housing Minister provided an update on Leasehold Reform and a timeline to introduce the promised legislative changes.
- From January 31st, 2025, the government abolished the two year ownership rule for leaseholders.
This means that the buyer of a flat can now make an application for a lease extension using a Section 42 Notice, once they are the registered owner at the Land Registry.
- On 3rd March 2025 Right to Manage measures will be introduced which will increase the number of buildings entitled to exercise RTM.
Should I extend or buy my lease now?
We’ll watch this space with interest, but as things stand, we would not recommend delaying your plans in the hope of better terms in an unknown future. If you need to extend your lease, or buy your freehold, then you should take professional advice from a solicitor with direct experience of leasehold enfranchisement, and of course an RICS Registered Valuer, such as Jackie Collis at Each Side Leasehold.