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Government to reform controversial leasehold system

The government is proposing reforms to England’s controversial leasehold system. The reforms would help stop the high costs associated with extending a lease. 

Krista Lomu
· 3 min read

The government is proposing reforms to England’s controversial leasehold system. The reforms would help stop the high costs associated with extending a lease. 

The proposed changes could help many leaseholders save money. Among them, former council tenants who bought their homes in the 1980s are likely beneficiaries. Leasehold owners may also find it easier to sell their homes once the new rules are in place.

Currently, leaseholders have the right to use the property but require the landlord’s permission for any work or changes to the homes. The first lease granted when a leasehold flat or house is sold tends to be a fixed period, typically 99 to 125 years, but it can be as long as 999 years. It’s possible to extend the lease or buy the freehold, which is the ownership of the property outright. However, this process can be costly.  

What is the government proposing?

The proposal targets a part of the fee leaseholders pay if they want to extend their lease. The part called the marriage value represents the increase in the property value. But the government is now set to scrap it, following recommendations by the Law Commission. 

At first, the changes would also allow leaseholders of houses to extend the lease for 990 years instead of the current 50 years with ground rent. Leaseholders of flats can extend as often as they want at zero ground rent for 90 years. But under the proposal, both leaseholders could extend their lease a standard 990 years with zero ground rent. The government also wants all new leases to have zero ground rent. 

The proposal also introduces a cap on ground rent payable when a leaseholder chooses to extend the lease or become a freeholder. The government plans to set up an online calculator that helps leaseholders understand how much extending the lease or buying the freehold would cost.

Campaigners want further action

Campaigners have welcomed the move. Propertymark, the professional body for estate agency staff, said it’s especially happy the ground zero rent will apply to new retirement home leasehold properties. The Financial Reporter quoted Mark Hayward, chief policy adviser at Propertymark, as saying, “Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap”.

However, the plan to make new leaseholds have a zero ground rent isn’t going far enough for many. Propertymark wants the government to apply the zero-rate to all retirement home properties, not just the new ones. Campaigners are also asking the Parliament to approve the changes as soon as possible. There are currently many leaseholders in limbo and facing thousands of pounds worth of fees.

Krista Lomu

Krista Lomu

Krista has been writing about finance for nearly a decade. Based in London, she hopes to turn even the most complicated topics to approachable and interesting for readers. When she's not writing and working with small businesses, she likes to read, watch football and play games - fuelled on by many cups of coffee!
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