Briefing Note Regarding Government Reforms To Make It Easier And Cheaper For Leaseholders To Buy Their Homes
On Thursday 7th January 2021, the Ministry of Housing, Communities and Local Government published a press release setting out the Government’s objective to make it easier and cheaper for leaseholders to exercise their current rights to enfranchise (acquire the freehold and extend their lease).
This proposed reform is part of a wider Government objective to re-vamp the leasehold property system in England and Wales.
The press release follows a lengthy consultation process which was undertaken by the Law Commission about how the law might be changed to facilitate the Government’s stated objectives. A number of consultation papers have been published in the last 12 months including a review of possible changes to the law relating to Commonhold.
Unfortunately, the latest press announcement was singularly short on detail. It seems to us that the statement was designed more to have a political impact than to help inform leaseholders and their advisors on the proposals for law reform. Without further detail it is very hard to predict how the law might change. For this reason it’s too soon for us to be able to predict what effect the announcement will have on leaseholders– whether that be getting the freehold of their house, extending the lease of their flat or house, or acquiring the freehold of their building through the collective enfranchisement process. More particularly the press statement does not make clear when any such changes might become law.
However, the Housing Secretary has announced that leaseholders will first be given the right to extend their lease by a new term of 990 years at a zero ground rent. Because of the lack of detail it has sent out a message that there will be wide sweeping advantageous changes for leaseholders. But without further detail as to what those changes are likely to be, it is just not possible to advise either freeholders or leaseholders what effect the changes will have.
The Housing Secretary did say that savings will be made, and referred to the abolition of marriage value as forming part of the calculation of the price payable. However, marriage value only affects the calculation where the lease has less than 80 years of the lease left and so those who have leases in excess of that period will get no benefit from the change. Can that change be lawful, since it gives an advantage to leaseholders to the detriment of freeholders who also have rights in relation to their assets?
There was anecdotal reference in the press release to other changes being made to reduce the price, and the possibility of an online calculator to help the leaseholder. However, without more detail again it is impossible to say whether those changes are likely to be substantial and whether waiting to see if there is a better option than taking action now, even at a potentially higher price, but with the certainty of a known outcome, would be preferable.
As a lease shortens, the price to extend it or buy the freehold increases so waiting can often be a counter productive. Furthermore, where a lease term is already short and is affecting the saleability of the property, waiting is unlikely to be the best option in any case, especially where the leaseholder wants to move home.
It may well be that for those home owners who have signed what is now being called a toxic lease, these changes will be very welcome indeed. It seems that legislation will be introduced allowing them to extend their lease to 990 years but forcing a reduction in the amount of the ground rent (on which the lease extension price is calculated) so resulting in a more competitive premium to extend the lease.
So, should you wait and see, or act now?
Every case must turn on its individual facts, but from the very limited information we have been given, we would suggest that if the lease of your house or flat has less than 80 years unexpired it may be better to wait and particularly so, the shorter the lease. But if the lease is about to go below 80 years, think hard.
On the other hand, if your lease has in excess of say 85 years unexpired there is little point in waiting. Especially if you are thinking of selling. That said, it may take between 2 and 5 years before reforms are enacted. This is because there are not only the Parliamentary procedures to follow, but because it seems likely once the detailed proposals are published these will become subject to appeal by institutional investors who have funds invested in freehold ground rents.
The contents of this briefing note are not intended to be a definitive statement of the law since there is insufficient information to determine the scope of the proposals. The best advice we can give you is to contact us to discuss your case so that we can give you tailored guidance.
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