Government Reforms: News for Leaseholders

During the first week of January the Government brought in reforms to make it easier and cheaper for leaseholders to buy their homes.

This is one of the biggest reforms to English property law for 40 years and should make home ownership fairer and more secure.

In reality this means that millions of leaseholders will be given a new right to extend their lease by 990 years. These changes mean that some households could save from thousands to tens of thousands of pounds. Also, the elderly are protected by reducing ground rents to zero for all new retirement properties.

At present, under the current law, many people pay high ground rents, which when combined with a mortgage, can seem as though they are paying rent on a property they already own. There are still some questions that need to be ironed out around how the ground rent process will work should not all leaseholders chose to extend. This could be left up to the freeholder to choose, or the Government may look to make the rules. At this point we still don’t know.  

Also announced was the setting up of a Commonhold Council, made up of leasehold groups, industry and government, that will prepare homeowners and the market for the widespread take-up of commonhold.

Commonhold, is a model used widely around the world. It is where homeowners buy and own their property on a freehold basis, but blocks are jointly owned and managed. This means that the flat or house is fully theirs, and they can make decisions about its future too.

What does these changes mean in reality? 

These are my thoughts on some of these changes, and how they might affect people living in leasehold properties:

• Don’t mistake ground rent for service charge. Although this is really good news for leaseholders that extending their lease will no longer be as costly, it is important to remember that leaseholders will still need to adhere to the terms of the lease and pay the appropriate service charge. However, there is some discussion that arbitrary restrictions, such as banning pets will no longer be imposed.   
• Commonhold, will allow a person to own a freehold flat with shared responsibility for common areas. Managing Agents will therefore still be required for the management of shared communal areas. We believe that this will be another misconception about the commonhold process. 
• We have seen some serious mis-selling of leasehold properties over the years, especially with first time buyers not knowing the difference between leasehold and freehold. Although leaseholders are owner occupiers, they are essentially still a tenant with a landlord, with rights and obligations set out by the lease document.   
• It’s good news that Government are looking to outline plans to improve practices for future leases, but existing leaseholders need the Government to implement concrete solutions to help existing homeowners. Too many first-time buyers have been sold the dream of home ownership, without the full understanding of the obligations surrounding leasehold. Providing potential buyers with a copy of the lease early on in the purchase process, and making sure they read and understand it, would be beneficial to all involved.  

Andrew Turner, property specialist at Hughes Paddison Solicitors comments that “The headline of the Government’s press release states that the new legislation will make it easier for leaseholders to buy their homes. The press release goes on to say that leaseholders will be given the right to “extend their lease by 990 years”; so not quite a right to ‘buy’. But it is certainly a step in the right direction. The devil is in the detail of course and questions remain as to how this is going to work in practice

"For example, if all new leaseholds are to be sold with nil ground rent, is that going to make it harder for a leaseholder to sell their Victorian mansion flat?"

But these questions to one side, the announcement is positive news for many leaseholders and landlords, and should make things cheaper and simpler in the near future.