The Government has today announced plans for forthcoming legislation on leasehold reform as an initial step on a programme of reform that broadly follows the Law Commission reports and recommendations.
What was announced today is that there will be legislation that:
Will set ground rent at nil for all new leaseholds, now including new retirement property leases.
Will end ‘marriage value’ as a factor in the cost of lease extensions for existing leaseholders, together with what is described as “A cap on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder.”
Will bring in a statutory entitlement to a 990 year lease extension at zero ground rent for existing leaseholders (both for flats and houses). (Not entirely sure how this will work where the landlord is a head lessor on a less than 990 year lease, rather than a freeholder, but we will see.)
Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’. (NB, this would have to be on enfranchisement, I think. Makes little sense otherwise. Won’t save any leaseholders from the dreaded prospective ‘permitted development right’ adding of a storey or two to a block in the meantime.
There will also be 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.”
I understand this will be in two stages. First a bill on new ground rents, then a subsequent bill including lease extensions and enfranchisement. This, I think, makes practical sense, and stops the ground rent reform getting caught in sector arguments over extension/enfranchisement money and complexities.
There are some things in the leasehold reform asks made by many – and also the HCLG select committee report – that are not addressed in this press release. For example, removal of forfeiture for service charge arrears, and a fresh look at service charge operation overall. But this may be in the trailed legislation, we will have to see.
But what has been announced, for all that there are a lot of questions raised about the hows, is genuinely impressive as a first major step towards the eventual end of leasehold and replacement with commonhold. Though there is a long way to go, it has to be said that these are the most impressive and serious proposals for leasehold reform that have been seen for a very, very long time.
The proposals would offer many – though not all – existing leaseholders a way out of ‘short’ leases and ground rent liability at a rather more affordable price.
It would mean the roll out of a transformation of the basis of leasehold with the removal of ground rent for new leases – but, it is to be hoped, without blighting existing leases too badly given the changes to lease extension costs and terms.
And it would fundamentally change the current economic model of leasehold in a way that should see the gradual exit of ‘ground rent rentiers’ and development for commonhold becoming a much more attractive model.
Yes, the devil will be in the detail, but this sounds like a very good start.