Posted on 4th February, 2021
Government Announcement – Leasehold Reform
The Ministry of Housing, Communities and Local Government has published information on future changes to the leasehold system on 7th January 2021 which has subsequently been reported in the press. Some articles are a little misleading.
The government has actively been considering options for changes to the leasehold system since 2017 and commissioned the Law Commission to report on the subject. In January 2020, the Law Commission reported in detail on options for a range of reforms which included possible changes to make it cheaper and easier to extend a lease or purchase a freehold. The Law Commission made a series of options and recommendations for the Government to consider as part of changes to proposed policy associated with the leasehold sector.
The latest government announcement on the 7th January 2021 can be read here and is easy to read.
The announcement indicates the Government’s preference to follow some of the Law Commission’s more far-reaching recommendations in the future.
What Does it Mean and When Will Changes Take Place?
The Government’s statement details changes proposed to lease extensions, freehold purchases, ground rents and a policy to reinvigorate Commonhold tenure as an alternative to leasehold.
Legislation is to be brought forward in the current session of Parliament to set future ground rents in leases to zero. Parliamentary sessions run for a year from each spring so this legislation is therefore expected to pass through Parliament prior to spring 2021. We believe this legislation will not affect existing ground rents but will simply limit ground rents to zero in new leases granted going forwards.
The remainder of the proposals have no timescale as yet. The Government statement simply says ‘we will bring forward a response to the remaining Law Commission recommendations, including commonhold in due course’.
This suggests therefore that further changes will be in future Parliamentary sessions and not the current one. As the Law Commission report included a series of options, the above does not necessarily mean that all will be included in future government proposals.
The various proposals are extensive and include a range of options and sub options which may or may not be included in future legislation. Some of these such as: longer 990 year lease extensions; changes to the valuation method; the removal or reduction of marriage value; pre-setting some of the valuation calculation rates, making an online calculator for lease extension costs available and leaseholders given the ability to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value within an enfranchisement are being widely documented in the press.
There is no published government timescale for these other changes at present, but estimates are that any such changes are still several years away.
Should I Still Move My Lease Extension or Enfranchisement Forwards Now?
It is difficult for us to advise you on how to proceed following the Government’s announcement which has no timescale or certainty over what may or may not happen. If you have already commenced a lease extension or enfranchisement and you now withdraw, you will have to bear abortive costs including those of the freeholder and will be barred from commencing a further action for one year. Withdrawing on the basis of something which may or may not happen and with no certainty of any cost savings is probably not sensible.
If you have not yet commenced moving matters forwards then you have an option to continue now or wait depending upon your own circumstances.
You should bear in mind that the various proposals do not reduce the premium payable to the freeholder in the cases of houses under Section 9.1 of the 1967 Leasehold Reform Act or the valuation of leases of flats under the 1993 Leasehold Reform Housing & Urban Development Act where the current unexpired term is over 80 years. These valuations are simply proposed to remain the same.
Savings on lease extension premiums could be large where there are shorter leases under 80 years unexpired. In these cases where there is currently a large amount of marriage value payable then if marriage value is abolished or reduced the premiums payable will reduce.
However, as leases shorten and if values increase then the premiums payable for lease extensions may still increase particularly if marriage value is not fully removed. Therefore, if you delay proceeding at this time then you will have to accept that there is a risk that if the legislation does not take place at all or differs in what is currently being reported then your lease extension overall cost could still actually increase or stay the same.
Proposals may however reduce professional costs in all cases and there may well be savings in your fees and the fees currently recoverable by the freeholder.
However, certainty in whether these cost reductions will come into effect and what any overall reduction may be is simply not known at this time.
Any decision to either proceed or to wait will now therefore involve a risk that taking the other option could lead to a different either more or less favourable outcome both in terms of cost and the end result.
We are happy to discuss any particular leaseholder’s case and identify benefits and disadvantages of proceeding or waiting upon request.