Housing Secretary Robert Jenrick has announced that leaseholders in England will be offered the chance to extend their lease by up to 990 years, with no ground rent payable.
The reform will be welcomed by an estimated four and a half million people, some of whom are currently struggling with excessive ground rent payments.
The government aims to make the system fairer for leaseholders, who in the past have been subjected to arbitrary increases in ground rent with little or no benefit in return in the so-called leasehold scandal.
The scandal arose after new build properties were sold with clauses in their leases that allowed freeholders to double the amount of ground rent payable every ten years. Buyers had not recognised the problem at the time of purchase, but eventually, the sums due were substantial and in some cases, owners had difficulty in paying and were also unable to sell their homes as lenders refused to offer mortgages over properties subject to this burden.
Increasing the lease term
The proposals will also help those who need to increase the term of a lease. Currently, once the number of years left to run on a lease falls below a certain level, a property can be hard to sell, meaning the leaseholder must try and extend the lease.
If the property is a house, the freeholder is able to impose a ground rent increase and the lease can only be extended once by law, for 50 years.
Where the property is a flat, a lease can be extended with only a negligible ground rent payable, but the term is often only for another 90 years. The longer term of 990 is far more desirable, putting the lease on a par with freehold ownership.
The new proposals
It is proposed that any leaseholder who decides to extend their lease will not have to pay any ground rent to the freeholder. Over the years of ownership, this could amount to a saving of thousands of pounds.
The new term of 990 years will be available to everyone. Leaseholders will still be required to pay to extend a lease, but the ‘marriage value’ element of the charge, forcing the leaseholder to pay for an estimated increase in the value of the property, often many thousands of pounds, will be eliminated.
All leaseholders will also have the opportunity to agree to restrict future development of their site to avoid being required to pay development value on the extension of their lease.
The government intends to set up an online calculator so that leaseholders can easily find out how much it will cost them to extend their lease or buy the freehold.
It has also been proposed that commonhold be more widely adopted for new build properties, allowing flat owners to share ownership and management of their block themselves. A Commonhold Council is to be set up to prepare for the widespread implementation of the system.
Leases of newbuild retirement homes will have a ground rent of zero under the new proposals.
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