The UK government has announced sweeping reforms to leasehold laws in England and Wales, bringing major changes for both current and future leaseholders. The reforms aim to make the leasehold system fairer, more transparent, and affordable.
What is Leasehold?
Leasehold is a common form of property ownership in England and Wales, especially for apartments and houses. Under leasehold, the leaseholder owns the right to live in the property for a fixed period, usually 99-125 years when first sold. The freeholder retains ownership of the land itself.
Leaseholders must pay ground rent to the freeholder for the duration of the lease. The lease also obliges leaseholders to abide by terms and conditions set by the freeholder, such as permission for renovations (1).
Why Reform was Needed
Criticism of leasehold has grown hugely in recent years. Key concerns included:
– Unfair ground rents – some as high as £10,000 a year, trapping owners in unsellable properties (2).
– Expensive extension fees of £2,000-£15,000 to renew a lease when it ran down, sometimes levied decades before expiry (3).
– Onerous terms allowing freeholders to charge unreasonable consent fees for renovations.
– Lack of transparency around service charges.
– Difficulty selling leasehold flats, devaluing investments (4).
Highly publicized cases of freeholders exploiting vulnerable leaseholders exacerbated demands for reform (5). The reforms aim to make leasehold fair, affordable and sustainable.
Key Changes Announced in 2023
The announced reforms include:
Ground Rent Reduction
– Ground rents on new leases to be reduced to zero, compared to an average of £400 currently (6).
– Leaseholders can extend leases by 990 years at zero ground rent. The cost will be limited and phased depending on the lease left (7).
– Ground rents for existing leases will be able to be reduced through a tribunal. Some leaseholders may be able to remove ground rent completely (8).
– Transparency improved on what service charges cover, providing a clearer breakdown. Limits to prevent unreasonable consent fees for alterations (9).
– New commonhold councils will give leaseholders more collective power. These councils maintain common areas and negotiate disputes with freeholders (10).
The reforms aim to overhaul the leasehold system. Common concerns like ground rents, renewal fees and consent charges will be reduced or removed completely in most cases.
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Impact on Current and Future Leaseholders
The reforms will have major implications for both current and future leaseholders in England and Wales.
For current leaseholders, the ability to significantly reduce ground rents will ease financial burdens. Extending a lease will become quicker, cheaper and simpler. More transparency around service charges will help leaseholders understand and challenge unreasonable fees.
Future leaseholders will benefit even more extensively. Purchasing a leasehold with zero ground rent will increase affordability. Negotiating lease extensions in future will be more straightforward and cost-effective. The overall system will be more balanced and equitable for leaseholders.
Challenges and Responses
The reforms face some challenges, including:
– Persuading freeholders to cooperate, as they will lose significant revenue streams. The government is working closely with freeholders to implement changes smoothly (11).
– Transitioning funding away from ground rents. The government is exploring alternative streams like one-off upfront payments by developers (12).
– Communicating the complex changes clearly to leaseholders. Comprehensive guidance will be provided alongside the reforms (13).
Overall, the leasehold reforms mark a major milestone in empowering both current and future homeowners. While transition may prove complex, the overhauled system should make leasehold ownership significantly fairer and more affordable long-term. For leaseholders frustrated with the current system, the announced changes will come as very welcome news.
- The Leasehold Advisory Service: https://www.lease-advice.org
- Which? Campaign on Unfair Leaseholds: https://www.which.co.uk/campaigns/leasehold/
- Citizens Advice on Lease Extensions: https://www.citizensadvice.org.uk/housing/home-ownership/extending-your-lease/
- MoneySavingExpert on Problems Selling Leaseholds: https://www.moneysavingexpert.com/mortgages/buy-leasehold-flat/
- BBC News on Leasehold Scandal Cases: https://www.bbc.co.uk/news/business-50637363
- Gov.uk Press Release on Leasehold Reforms: https://www.gov.uk/government/news/new-measures-to-reform-residential-leasehold
- HomeOwners Alliance Lease Extension FAQs: https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/lease-extensions-faqs/
- Law Commission Recommendations on Leasehold Reform: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/
- Leasehold Knowledge Partnership on Service Charges: https://www.leaseholdknowledge.com/service-charges-outsourcing-jsas
- ARMA Guidance on Commonhold: https://arma.org.uk/resource/commonhold
- Financial Times on Freeholder Opposition: https://www.ft.com/content/988314ee-79e2-49f3-9c9d-dc05b86165a1
- The Negotiator on Leasehold Funding Changes: https://thenegotiator.co.uk/breaking-news/2020/11/taxpayers-fund-leasehold-replacement/
- UK Government Guidance on Leasehold Reform: https://www.gov.uk/guidance/reform-of-the-leasehold-system