Leasehold reform: lease extensions and commonhold


13 January 2021

On 7 January 2021, the Housing Secretary announced plans for new legislation to make it easier and cheaper for leaseholders to buy their homes and to prepare homeowners and the housing market for the widespread take-up of commonhold. 

The keys points of the government’s announcement are: 

  • Introducing a statutory right to extend a lease for 990 years at zero ground rent, available to existing leaseholders of both flats and houses, including new retirement leasehold properties
  • Abolishing the concept of ‘marriage value’. This is compensation payable under the current law intended to compensate the freeholder for not getting the lease back at the expiry of the original term. It often proves to be the barrier for lease extensions as the fewer years that are remaining on the original term, the more ‘marriage value’ has to be paid to the freeholder to extend the lease. Removing this barrier to lease extensions and setting ‘calculation rates’ via an on-line calculator will ensure that the lease extension process becomes fairer, cheaper and more transparent
  • Enabling leaseholders to voluntarily agree to a restriction on future development of their property in order to avoid paying ‘development value’
  • Establishing a Commonhold Council – a partnership of leasehold groups, industry and government – to prepare homeowners and the market for the increased drive towards the commonhold model. The concept of ’commonhold’ was introduced under the Commonhold and Leasehold Reform Act 2002 but has not proved particularly popular. No doubt the Government considers further changes are necessary to make this a more attractive form of tenure. 

The plans unveiled in the government’s announcement will be introduced in two stages. The first stage will see legislation brought forward to set future ground rents to zero, while the second stage will see a subsequent bill incorporating changes to lease extensions and enfranchisement. 

The proposed plans for leasehold reform have been widely welcomed as a first major step towards making it a level-playing field for leaseholders to buy their homes and putting an end to the ground rent scandal. The proposed changes aim to simplify the lease extension process, making it more accessible and costs effective. The new measures will also seek to protect the elderly, ensuring that purchasers of new retirement leasehold properties have the same rights as other homeowners and do not fall prey to uncertain and rip-off practices. 
 
Despite the massive challenges facing the Government on COVID-19, it would appear that leasehold reform is still high on the political agenda and we shall now await draft legislation to add the details to the Housing Secretary’s announcement. 

For further information please contact Elena-Lucia SingletonClive Adams or another member of Birketts' Social Housing Team.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2021.