Leasehold is back in the news again, with the government revealing changes to the controversial system of ownership which many in the UK passionately oppose.
The governments of Theresa May and Boris Johnson have both promised significant leasehold reform to ensure homeowners aren’t penalised – typically with high ground rents and service charges, and difficulties in extending a lease – by virtue of being leaseholders rather than freeholders.
As we’ve written about in the past
, the leasehold issue has been ongoing for years – with the government and the Law Commission, in particular, both trying to set out workable reforms to an entrenched system.
But it’s been since 2017, when the leasehold scandal broke, that the issue has really become political.
It emerged back then that developers – including some very large, high-profile ones - had been selling leasehold homes with spiralling ground rents and significant fees attached, leaving many homeowners stuck in homes they couldn't sell and equally couldn't afford to live in.
Since then, there have been research papers, consultations, recommendations and government announcements to try and solve a hot potato of an issue, but concrete action has been much thinner on the ground.
Here, we lay out the latest changes to the leasehold process and what this could mean for existing homeowners and future leasehold buyers.
What is being proposed?
The government has outlined planned reforms to England’s leasehold system – which critics see as a hangover from feudal times – which would clamp down on high costs when owners attempt to extend a lease.
A leasehold property, unlike a freehold one, is not owned outright by the buyer when they purchase it – they instead ‘lease’ it from the landlord or freeholder for a set number of years, which typically range from 99 to 125 years, but can be as high as 999 years.
Leaseholders can extend their lease at any point by applying to their freeholder and negotiating a fee, with part of this fee called the marriage value. The marriage value represents the rise in the value of the home once the lease has been extended.
However, under the government’s plans – influenced by recommendations from the Law Commission – the marriage value will be scrapped. Ministers argue that this will make charges far more transparent where extending a lease is concerned.
Alongside this, millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent.
Currently, leaseholders of houses can only extend their lease once for 50 years with a ground rent, while leaseholders of flats can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.
As a result of the changes, both house and flat leaseholders would be able to extend their lease to a new standard 990 years with a ground rent set at zero. This means any leaseholder who decides to extend their lease on their home will no longer have to pay any ground rent to the freeholder, something which could save some leaseholders tens of thousands of pounds.
Additionally, a cap is set to be implemented on the ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. To make it simpler and easier for leaseholders to find out how much it would cost them to purchase the freehold or extend their lease, an online calculator will be created to provide this information.
Elsewhere, further measures are set to be introduced to protect the elderly, with the government applying its previous commitment to restricting ground rents to zero for new leases to make the process fairer for leaseholders to retirement leasehold properties. As a consequence, buyers of these homes would enjoy the same rights as other homeowners as well as being, in theory, ‘protected from uncertain and rip-off practices’.
Lastly, the government announced that it is putting together a Commonhold Council – formed of a partnership of leasehold groups, industry and the government – to prepare homeowners and the market as a whole for a proposed widespread take-up of commonhold, a kind of halfway house between leasehold and freehold which is seen by many as fairer than the current leasehold system.
The plan is to bring forward legislation in the upcoming session of Parliament, to set future ground rents to zero. However, it is important to be aware that this has been promised for a long time without any action to back it up. Parliamentary time is also likely to be at a premium with Covid-19 and the fallout from Brexit still dominating the workload of the Commons and Lords.
The government has also promised to bring forward a response to the remaining Law Commission recommendations
, including the greater use of commonhold, ‘in due course’.
Housing Secretary Robert Jenrick said of the planned changes: “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.”
He added: “These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether."
Professor Nick Hopkins, Commissioner for Property Law at the Law Commission, added: “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.”
What was the reaction from the industry?
On paper, the government’s plans should enable those with shorter leases to have more clarity and certainty over their situation, and find it much easier to secure a longer lease, without fearing bills that could reach into the many thousands of pounds.
Those who took advantage of Margaret Thatcher’s Right to Buy policy in the 1980s to purchase their council homes are expected to be among those who could benefit.
The proposals, however, are complex, and campaigners on the issue – which has become one of the most popular areas for community activism and group action in recent years – have given them a cautious welcome.
The protections in place for leaseholders of the future have been met with positivity, but many are still of the opinion that they should be recompensed for unfair charges and ground rents in the past.
Paediatric nurse Katie Kendrick, one of the most high-profile opponents of leasehold and one of the founders of the National Leasehold Campaign
, has labelled the system as a relic of a feudal age and said the government’s plans marked ‘the start of the end for leasehold’. The NLC has, however, called for the changes to be made quickly to ensure as many leaseholders escape from their current limbo as possible.
Another high-profile opponent of the system, the Leasehold Knowledge Partnership, welcomed some of the measures but insisted it needed more details on how the new calculation will work, whether it would be cheaper for everyone, and how much an extension would cost.
Jenrick claims that there will be savings of between £8,000 and £9,000 for the average leaseholder buying their freehold, but this will take time to prove.
Mark Hayward, chief policy adviser at trade body Propertymark, said of the changes: “We have campaigned for years for changes to the leasehold system and event fees on retirement homes. The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses.”
He added: “Our research ‘Leasehold: a Life Sentence’ in 2018 found that 46% of leasehold house owners were unaware of the escalating ground rent when they purchased their property. Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”
However, while the body welcomed the government’s initiative to reduce ground rents to zero for all new retirement properties, Hayward argued that this needs to be extended to all retirement properties to create a level playing field.
“Event fees remain a hugely contentious issue which many consumers still don’t understand so we need as much clarity and transparency as possible,”
As ever with leasehold, the optimism with these announcements will be tempered by caution and scepticism – as people will feel like they’ve been here before.
Only when the changes are enshrined in law will the campaigners and opponents to leasehold be fully relaxed, but the pressure to abolish the system entirely and replace it with commonhold – where people own the property in a complex, but the blocks themselves are jointly-owned and managed – as a viable alternative.
This’ll be easier said than done, however, with commonhold only accounting for a very small number of developments at present
The devil, as always, will be in the detail, but leaseholders across the country will at least be pleased to see the topic back on the national agenda again.