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

• New leases are to be extended by 990 years rather than the current 90 years for flats (less for houses).
• Marriage value is to be scrapped. This is currently payable for example by flat leaseholders where their lease has less than 80 years to run. It can be a large component of the premium payable. It remains to be seen whether any of the rates below are to be set in a way that goes toward compensating the landlord for the loss of marriage value.
• The rates used to calculate the balance of the premium payable to the landlord namely “the term” and “the reversion” may be set at levels that favour leaseholders, i.e. the rate used to calculate the sum required to compensate for loss of a ground rent income stream. The amount of ground rent taken into account may be capped.
• Commonhold is to be reformed and a Commonhold council established with a view to the widespread take up of Commonhold.
• Leaseholders of houses are to benefit from zero ground rent being a significant change from the current arrangement.
• An online calculator is to be introduced to make it simpler for leaseholders to find out how much the premium will be to buy their freehold or extend their lease.
• Ground rent in new leases, i.e. when purchasing off plan, is to be restricted to zero. This is to apply to retirement leasehold properties as well.
• Development value can be avoided by leaseholders instead accepting a restriction on future development.
• Their response to the balance of the Law Commission’s recommendations is to be brought forward.

There may be unintended consequences;

Those leaseholders who stand to save significant sums may withdraw their properties from the sales market to take advantage of the saving before returning with their improved asset so leading to a paucity of supply in areas with a high concentration of short leases.

Leaseholders who collectively acquired their freehold in the past may find that they receive less than they banked on from those who did not participate when they call for an extended lease under the new framework.

Buyers of second-hand properties will prefer zero rent leasehold properties so forcing those with rents to act.

While leaseholders may on balance be pleased it may be of little comfort for those who cannot wait for the reforms to come into effect.

Leaseholders may opt to withdraw from current claims but then lose out if the reforms are watered down.

Hopefully the detail will be published soon.

Mark Vinall, Partner at Winckworth Sherwood