England’s leasehold system is changing to benefit leaseholders - the new rules explained

Thursday, 7th January 2021, 11:54 am
Updated Thursday, 7th January 2021, 11:54 am

The current leasehold system in England is set to be reformed as part of government proposals.

The measures aim to clamp down on high costs for those who extend the lease of their home, helping those with shorter leases to avoid large bills.

What is a leasehold property?

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Those leasing a property own the lease, which means they have the right to occupy the property, but they still have to get permission from their landlord before they make any changes to their home.

A lease is granted for a fixed period of time when a property is first sold, but people may be able to extend the lease or buy the freehold. A freehold is when someone outright owns the property and the land it is built on.

What are the government’s proposals?

When someone leasing a property wishes to extend the lease, they have to apply to their freeholder - who owns the property - and negotiate a fee to be able to do this.

However, part of this fee involves the ‘marriage value’, which is the increase in the value of the property once the lease has been extended.

But, following recommendations by the Law Commission - which keeps the law under review and recommends reform where it is needed - the government plans to get rid of the marriage value.

This will subsequently make charges more transparent when leases are extended, according to Ministers.

Nick Hopkins, Commissioner for Property Law at the Law Commission, said: “We are pleased to see government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler.

“The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own."

As part of its plans, the government announced that it is establishing a Commonhold Council, which is a partnership of leasehold groups, industry and government that will prepare both homeowners and the market for the commonhold model.

The government plan also involves leaseholders of houses given the opportunity to extend their lease for 990 years, which then reduces the risks of the property becoming more difficult to sell.

Currently, leaseholders of houses can only extend their lease once for 50 years with a ground rent, but leaseholders of flats can extend as often as they like at a zero ground rent for a period of 90 years.

The government wants legislation to instead allow both house and flat leaseholders to be able extend their lease for 990 years, with a ground rent of zero.

‘Too bureaucratic, burdensome and expensive’

Housing Secretary Robert Jenrick said that leaseholding a property is currently too expensive, and that the government wants to change the way people own homes.

Mr Jenrick said: "Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

“We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.”