How a major leaseholder shake-up could save homeowners thousands of pounds
The biggest property reforms "for a generation" could save homeowners thousands of pounds and free them from the bureaucracy and expense of leaseholds.
The proposals would give leaseholders the right to extend their lease by 990 years and could also mean they no longer have to pay any ground rent to the freeholder, removing added expense from owning a home.
The proposals, announced by Housing Secretary Robert Jenrick on Thursday, are being billed as some of the biggest reforms to English property law for 40 years as ministers strive to make home ownership fairer and more secure.
What would the changes mean for you if you are a leaseholder?
How long could I extend my lease for?
A freeholder owns both the property and the land it stands on while leaseholders only own the property, paying ground rent to the freeholder.
Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent.
This compares to leaseholders of flats who can extend as often as they wish at a zero “peppercorn” ground rent for 90 years.
The reforms mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.
Why is this important?
Short leases are often a stumbling block when it comes to selling; vendors are often forced to drop the price if a lease is shorter than 80 years. It is at this point at which buying the freehold or extending the lease becomes more expensive for leaseholders due to the 'marriage value' (see below).
Extending a lease can run into the tens of thousands - how much depends on the value and size of the property.
Will it mean I have more control over the running costs of the building?
These reforms could make it easier for leaseholders to buy a stake in the freehold, which could also help to bring down costs.
Currently landlords are able to increase charges arbitrarily, with leaseholders given little say in the running of the building and contracts.
Leaseholders are also sometimes charged huge sums just to give permission for an extension or even a boiler replacement fitted if it involves any changes to an exterior wall.
Some lenders will not grant mortgages against homes with excessive ground rent clauses, rendering a home unsellable.
So I would be able to buy the freehold?
In theory, yes. Writing in the Daily Mail, Mr Jenrick said the government was "scrapping the complex and opaque process for leaseholders looking to buy their freehold or extend their lease."
He also said they would be looking to "abolish prohibitive and arcane costs like ‘marriage value’".
What is 'marriage value'
Marriage value is 50% of the difference in value between your property having a short lease (before renewing) and when the lease is extended.
When a leaseholder buys the freehold or extends the term of their lease, they are increasing the value of the property, although the value of the two combined is often more than they would be if considered separately.
Under the Leasehold Reform, Housing and Urban Development Act 1993, the freeholder/landlord is entitled to 50% of that marriage value if the lease has fallen below 80 years.
Ground rents scraped for the elderly
Ground rents will be reduced to zero for all new retirement properties.
Officials said the changes could save leaseholders thousands of pounds, rising to tens of thousands of pounds for some.
How will it work?
Ministers are set to establish a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare homeowners and the market for the widespread take-up of commonhold.
The commonhold model, widely used around the world, allows homeowners to own their property on a freehold basis, giving them greater control over the costs of home ownership.
Under the scheme, housing blocks are jointly owned and managed, meaning that when someone buys a flat or a house, they own it outright and any decisions about its future lies with them.
How will I know how much it will cost me?
Once the new law is introduced, leaseholders will be able to work out the cost of their premium – that is the payment to the landlord for purchasing the freehold or extending the lease – via an online calculator.