The topic of Leasehold Reform has been hot in the press and media for quite some time now, whether it is to do with extortionate doubling ground rents, developer’s charging large sums of money for the owners of leasehold houses to buy their freehold, or cladding that does not meet fire safety regulations, for the last two years we seem to have been gaining some momentum with regard to potential reforms; has the Government finally listened?
Leasehold Reform 2020
In 2020 the Law Commission published three final reports on Leasehold Reform. The reports addressed buying your freehold or extending your lease, including the options to reduce the price payable and exercising the right to manage. The Law Commission was also tasked with considering how to reinvigorate commonhold tenure, which was introduced by the Commonhold and Leasehold Reform Act 2002.
In January of this year, the Government announced that legislation would be introduced, in this parliamentary session, tackling some of the areas in which reform has been recommended.
Will the Leasehold Reform help me?
One of the most common questions now posed to the Enfranchisement Team here at Mayo Wynne Baxter is ‘will the reforms help me, and, if so, how?’.
The proposed reforms can be summarised as follows:
- A right to a new 990-year lease for owners of flats or houses
- The reduction of the ground rent to nil
- The removal of marriage value from the amount payable to the freeholder
- The creation of a simple Government backed lease extension price calculator
Changes to Ground rents
The Government has only, so far, tackled one of the above four items: ground rents.
Unfortunately, high/onerous/doubling ground rents are causing a number of issues in the leasehold market. We are faced with mortgage lenders that refuse to lend on leasehold properties where the ground rent doubles every 5, 10 or 15 years throughout the term of a Lease. It is the stance of mortgage lenders that seems to be driving the response from buyers, and in the market in general. A buyer will not take the risk of purchasing a property that they cannot get a mortgage for, either now, or at a later date. In addition, even if the ground rent in a Lease doubles less frequently; say every 20, 25 or 33 years, buyers are still reluctant to proceed AND sellers are then faced with the prospect of spending, in some instances, large sums of money to remove the doubling ground rent. High yearly ground rents also pose an additional risk; that is if the ground rent goes over £250 per year (£1000 a year in London), then the Lease is classed as an Assured Shorthold Tenancy and the Landlord has a mandatory ground for possession if you are in arrears.
The ‘ground rent crisis’ has to be tackled, and the Government has attempted to do so; draft legislation has been published and is currently being considered.
Where do these changes apply?
The draft Leasehold Reform (Ground Rent) Bill that has been produced will apply to new long leasehold residential properties. It will not apply to current Leases, or retrospectively. Long leasehold means a Lease of 21 years or more. The only ground rent that a freeholder (Landlord) can charge in a long Lease cannot be for more than one peppercorn per year. The draft Bill also bans freeholders from charging administration fees for collecting a peppercorn rent. Freeholders that charge more than a peppercorn also face being fined up to £5000. The draft Bill will apply in England and Wales.
When are changes coming?
The draft Bill is currently on its 1st reading with the House of Commons, having completed five stages with the House of Lords (1st reading, 2nd reading, committee stage, report stage and 3rd reading). There are also five stages to go through the House of Commons before amendments are considered and made (if agreed) and the Bill receives Royal Assent.
An amendment has been requested to the draft Bill, aiming to ensure that the Government does introduce further legislation, at a later date, which removes ground rent for all leaseholders. It is too soon to know if this amendment will be accepted.
Who will these changes help?
In short, if you already have a high yearly or doubling ground rent, the draft Bill will not help you. In addition, if you are looking to purchase a new leasehold property, high or doubling ground rents can be imposed if and until the draft Bill receives Royal Assent. The draft Bill in its current format could also be amended. We will have to wait a few more months before we know what the final Bill will look like.
We also still have a long way to go before Leasehold Reform has a meaningful impact on existing leaseholders.
Charlotte Clarke, Associate Solicitor