The Ministry of Housing, Communities & Local Government (MHCLG) issued a statement on January 7, 2021, saying that “government changes [would] make it simpler and less expensive for leaseholders to buy their homes.” This follows the Law Commission’s reports on the possibilities for lowering the price payable, which were released in January 2020, and on enfranchisement, commonhold, and right to manage, which were published in July 2020.
The following are the major reforms suggested by the government:
- Millions of leaseholders will be granted a new right to extend their lease for a further 990 years;
- Households might save hundreds to tens of thousands of pounds as a result of the changes, while the elderly will be safeguarded by a reduction in ground rents to zero for all new retirement residences.
What does this indicate for the leasehold industry, and how will these reforms affect it?
The simple answer is that we’ll have to wait and see, and possibly an unintended result of the announcement has been sector-wide uncertainty owing to the lack of detail offered.
Enfranchisement lawyers are well aware of the various traps and issues that current legislation, which consists of numerous Acts and Regulations, presents. For many years, we have agreed as an industry that change is needed to make the process of extending a lease or acquiring a freehold easier, equal, and fairer.For example, it has never made sense to the writer for a lease extension to need a qualified leaseholder to have held a property for two years to begin a claim, but no such term is required to collectively enfranchise. The two-year limit is widely supported in the business, although it is not included in the statement.
While the statement is positive, it lacks the specificity needed to inform leaseholders about the scope of the adjustments and how they would be implemented. Maybe a bit more information could have been included in the statement?
Extending lease by 990 years
There will be a 990-year extension, but in effect, the value and security to a lender will be essentially similar to that of a flat lease that has already been extended for 90 years under current rules. Houses and apartments will both be covered by the universal right to a 990-year lease. It’s worth remembering that housing leases may only be renewed for another 50 years at the moment.
The statement makes it obvious that future ground rents will be set to zero during the current parliamentary session, but when that will happen, we’ll have to wait and see. Will such leases with high ground rents be subject to a retroactive application? Will this apply to both flat and house leases? Is this simply going to apply to senior homes? For many years, onerous ground rents have been in the headlines, and more clarification on how such reforms would function in practice is needed.
Marriage value will be removed, according to the declaration. When a lease has fewer than 80 years left on it, the additional compensation given to the freeholder might be a substantial portion of the premium computation. Will this part be replaced in order to properly compensate freeholders? It will have to wait and see. Will freeholders claim that any such modifications would result in an unfair loss of income and capital worth and file a Human Rights Act complaint? This is a distinct possibility.
Clarification Is Needed
The Association of Leasehold Enfranchisement Practitioners (ALEP), the industry’s professional organization, has issued its own response to the statement, concluding by requesting “further clarity regarding the timeframes of these changes, when the first draft of this legislation will be published, and more detail on what these modifications will actually look like in practice.”
For the time being, the devil is in the details, and without them, it is hard to completely assess the impact of these proposed reforms on the leasehold industry as a whole, as well as how they would influence ongoing claims until legislation is passed. It will take time to completely revise the legislation, and it is unclear how far the other suggestions in the 2020 Law Commission Reports will be followed.
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