As if there aren’t enough government announcements to keep up with at the moment, on 7 January the government issued a press release, somewhat out of the blue: Government reforms make it easier and cheaper for leaseholders to buy their homes.
Read on to find out what this announcement means for leaseholders and how the reforms could affect you if you are a leaseholder.
Leasehold vs freehold
Before we get in to the nuances of the reforms, we thought a quick recap on the difference between leasehold and freehold would be useful. When somebody owns the freehold of a property, that person owns the property and the land it stands on for an unlimited period of time. When somebody owns the leasehold of a property, that person owns the property but not the land is stands on. A leaseholder essentially rents the property from a freeholder for a period of time, which can be years (decades, centuries even). Traditionally, most flats were sold as leasehold and most houses were sold as freehold, although controversially this hasn’t been the case in recent years. Cue the problem with leaseholds…
The problem with leasehold
The leasehold system (in England) is a complicated and politically charged one that has emerged and evolved over centuries dating back to the first world war. In more recent times, a white paper on leasehold reform was published by the Labour government in 1966 setting out its intentions to allow leaseholders to purchase the freehold or extend their lease and so it was in 1967 that The Leasehold Reform Act was enacted.
We mentioned controversy above. In 2019, an investigation by The Competition and Markets Authority concluded that there was ‘worrying evidence’ to support homebuyers’ claims of being mis-sold and mislead about the terms of their lease so as to cover up escalating ground rents, expensive service charges and shorter leases (which make it harder to sell or re-mortgage). Cue the solution for leaseholders…
The leasehold reforms
Under the new reforms, millions of homeowners will be given new rights that include the potential to:
- Extend leases by 990 years
- Not pay any ground rent
- Save tens of thousands of pounds on extending leases or buying freeholds
Hurrah for leaseholders we hear you cry! But hold on just a moment; these reforms are planned and won’t become applicable until the Government legislates, which it is planning to do ‘as soon as possible’. And of course, there is the small print around who can and can’t benefit, but it would appear the latter is nominal.
We recommend reading the full press release on the Government’s website: https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes
So what does all of this mean for you?
Just as The Leasehold Reform Act was controversial, and despite years of campaigning for change, this most recent announcement has been met with mixed reviews by property professionals. Whilst there is a clear benefit to leaseholders, it goes without saying that freeholders could be adversely affected and it is unclear how long it will take for the necessary legislation to pass, particularly with Covid-19 still at large.
From a practical point of view, if you are a leaseholder, you may want to consider pressing pause on any plans to extend your lease or purchase your freehold because once (if!) the reforms become law, the process is likely to be easier and cheaper.
We will continue to monitor any further announcements but if you have any questions or concerns in the meantime, please do not hesitate to get in touch with one of our sales or lettings team: https://johnshepherd.com/our-team/