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Millions of leaseholders to get new rights which could save £10,000s

Millions of leaseholders to get new rights which could save £10,000s

Millions of homeowners in England will be given a new right to extend their lease by 990 years and not have to pay any ground rent, while extending a lease or buying a freehold will also become cheaper for many, under sweeping new Government reforms.

Around 4.5 million people in England currently own their home on a leasehold basis - typically flat owners and some new-build property owners. That means while you own the property, you don't own the land it sits on. The land is instead owned by a freeholder, which can be an individual or a management company, and you typically have to pay rent to them on an annual basis (known as 'ground rent') for a set number of years. 

The planned reforms, which the Government estimates could save homeowners £1,000s or even £10,000s, come after the Law Commission proposed a number of measures to make leases fairer. There's no exact date for when the changes will come in yet, but the Government says it hopes to legislate as soon as possible. As such, you may want to consider delaying a planned lease extension or freehold purchase as you may well be able to do it much cheaper once the new rules become law. See our Leasehold Guide for full help.

Why do I need to extend my lease or buy my freehold?

If you own a leasehold property you usually have the right to either extend your lease or purchase your property's freehold (or a share of it). Traditionally, only flats were sold as leasehold, but it's applied to more and more houses in recent years.

Extending your lease becomes necessary as it approaches 80 years in length. Under this length you become liable to pay 'marriage value' on top of the costs of the lease extension, and your property can also become much harder to sell. However, extending a lease can take a long time and cost £1,000s as you need to pay the freeholder, and will need legal advice too.

Likewise, purchasing a property's freehold has become more necessary in recent years because of the increasing numbers of properties sold with clauses in them that means the ground rent doubles over a certain period, often 10 years. Increasing ground rent has affected leaseholders' ability to remortgage or sell their property.

Purchasing a property's freehold is one way of doing away with a ground rent clause. However, the process can take months, and, as the price is not defined, it can end up costing homeowners £10,000s. Leaseholders may also choose to buy their freehold if the freeholder doesn't maintain the building well, or charges exorbitant service charges to do so.

How are the leasehold rules set to change?

Here's a summary of the main changes the Government's announced:

  • All leaseholders who can extend their lease will have the right to do so by 990 years - and if you do, you won't have to pay ground rent. Currently, leaseholders of houses can only extend their lease once, for a 50-year period, while leaseholders of flats can extend leases as often as they wish for a 90-year period. The changes will mean both house and flat leaseholders can extend their lease for a new standard period of 990 years - and crucially, if you do so, you'll then no longer have to pay ground rent. Leaseholders will also have the right to extend their lease as often as they wish, though you should now only need to do so once.

    - Who's affected? This new right applies to all leaseholders who are able to extend their lease - the only people who won't be able to are those who aren't allowed to extend their lease, for example if there's a specific clause in your contract saying this because you live in a National Trust property or on Crown Estate. Ground rent will only be stopped for those who choose to extend their lease. If you don't, you may still be charged it.

    - How much could you save? It depends on how much your ground rent costs - housing charity Shelter says a typical ground rent charge is up to £400 a year, although it can be more.

    - When will it come in? Yet to be confirmed but the Government says it hopes to legislate as soon as possible. 

  • Many who extend their lease or buy their freehold will pay less. A number of charges involved in the cost of extending a lease or purchasing a freehold are either being capped or abolished. Specifically:

    1) A new cap will limit the level of ground rent used in lease extension and freehold purchase calculations. Both ground rent and the years remaining on the existing lease are used to calculate the cost of extending it or buying a freehold, so this will cut the cost for many. Further details are expected to be announced shortly.   

    2) 'Marriage value' and 'hope value' premiums will be axed. 
    When leaseholders extend their lease or buy their freehold, where the lease has 80 years or less left on it, they currently pay charges known as 'marriage value' and 'hope value' - these consider the potential gain from extending a lease or purchasing a freehold. Both will be abolished. 

    3) If you agree not to change a property, you won't be charged a 'development value' premium. Some properties have potential to grow their value through further development, such as adding an additional storey, and this can add a 'development value' premium to the cost of extending a lease or purchasing a freehold. Once the new rules come in, you won't be charged this so long as you agree not to change a property. 

    - Who's affected? These measures affect different groups - the first will benefit those with ground rents above the cap (though we don't know what that'll be yet), the second will help those with leases of 80 years or less, while the third will help those extending a lease or buying a freehold on a property with development value.

    - How much could you save? This depends on lots of factors including which situation you're in, the cost of your ground rent, the number of years left on your lease and your property's value. It could be £1,000s though - in fact, the Law Commission estimated that removing 'marriage value' and 'home value' could wipe around £6,000 from the cost of purchasing a freehold. The Government's setting up an online calculator to make it easier to find out how much it costs to buy a freehold or extend a lease. You'll also still need to pay legal costs to extend your lease or buy a freehold. 

    When will it come in? As above, TBC but the Government says it hopes to legislate as soon as possible.

  • Some who take out new leases in future won't pay any ground rent. The Government promised back in 2019 to restrict ground rents to zero - essentially to axe them - on all new house leases. It reiterated this today and confirmed this will include retirement leasehold properties built specifically for older people, as well as new leases on flats.

    - Who's affected? Buyers of houses and flats, including retirement homes, with new leases on them. New leases can be created for both newly built properties and where the building is existing. But this change WON'T apply to those purchasing properties with existing leases. 

    - How much could you save? Again, it depends on how much your ground rent costs - housing charity Shelter says a typical ground rent charge is up to £400 a year, but it can be more.

    - When will it come in? As above, TBC but the Government says it hopes to legislate as soon as possible.
The Government is also setting-up 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'. Commonhold is a form of ownership for flats and other multi-occupancy developments, where each property owner owns the freehold of their home and common parts of the property are owned and managed by a commonhold or residents’ association.

I'm planning to extend my lease or buy my freehold - what should I do?

If you can, you may want to consider delaying any planned lease extension or freehold purchase given the process is likely to be made simpler and less costly once these changes come into force. Remember though, that these changes aren't yet law and they could be delayed or changed as they pass through Parliament. We also don't have a clear timescale for when the changes will become law - it could potentially be a few years. 

If you're nearing having just 80 years left on your lease, while that's usually the point at which it becomes necessary to extend your lease or buy your freehold, that logic may change as a result of these reforms, given that some of the premiums on leases of less than 80 years, such as 'marriage value' and 'hope value', are to be axed. We're checking the full implications of the changes and will update our Leasehold Guide in due course - but in the meantime, don't be rushed into extending a lease or buying a freehold. 

What about homeowners in Scotland, Wales and Northern Ireland?

The changes only affect leaseholders in England. The Law Commission has recommended its proposals apply to leasehold in Wales too, and the Welsh Government told us it's considering what can be done, but said it's not possible to bring legislation forward in this Parliament. 

In Northern Ireland, it's a similar situation to England and Wales but there may be some nuances in legislation and definitions. More comprehensive guidance can be found on the Housing Rights NI website.

In Scotland, flats are sold on a similar basis as commonhold properties are in the rest of the UK. 

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