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Changes to a lease extension and collective enfranchisement rights planned for 2021

Leaseholders around the country awoke to significant news on 7 January 2021, in finding out that the Government plans to begin changing the rules around extending a lease or buying the freehold, making the process simpler and less expensive. In addition, the proposed rules will give the right to a new lease term of 990 years at a peppercorn ground rent, replacing the current extension of 90 years for flats and 50 years for houses.


Lower premiums

The single most fundamental change will affect those with leases with less than 80 years remaining.

The current rules state that ‘marriage value’ applies if a lease has fewer than 80 years left of the term. The calculation of marriage value is complex, can cause lengthy negotiations between the parties’ valuers and adds thousands of pounds to the amount payable to the freeholder.


Under the new rules, marriage value will not be applicable at all. This will mean lower premiums payable on extending the lease or buying the freehold.

It should also reduce the time the process takes, by eliminating one of the more contentious parts of the process.


More predictable

In a move away from bespoke valuations being required in each case, a simple lease extension calculator will be provided by the Government and will be accessible online. The objective is to make it easier for leaseholders to understand the likely costs of extending the lease or buying the freehold from the outset.

The removal of marriage value from premium payable will have the effect of making a simple calculator possible, as the remaining elements of the lease extension valuation are formulaic i.e., capitalising the ground rent that would be payable over the lease term into a single lump sum payable on extending the lease.


When will the law on leaseholds change?

Uncertainty remains as to when the proposals will become law and the exact form the legislation will take. It is possible that amendments and challenges to these proposals will take place before the proposals become law. However, the Government has set its sights on enacting the first part of the reform legislation within the current session of Parliament.


It will therefore be a question for individuals looking to extend their lease term as to whether to wait and look to achieve a lower price, without knowing how much benefit there will be and when the rights may become available.


Clearly, the changes benefit those with leases under 80 years the most. However, for those with leases over 80 years that need to extend the lease, for example, to enable the sale of a property, it is questionable as to whether there will be significant savings or whether there are substantial benefits of a lease of 990 years at a nil ground rent, over a lease of 170+ years at a nil ground rent.  


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