The Leasehold Reform (Ground Rent) Act 2022 came into force on 30th June 2022 and stopped ground rents from being charged in all new qualifying long residential leases.
It is now proposed to make further changes so that it will become quicker and easier to obtain a lease extension or buy the freehold for existing leaseholders in houses.
The Government have announced in the King’s Speech on 7th November 2023 that it will introduce a new Leasehold and Freehold Reform Bill.
The reforms (not all mentioned in the King’s Speech) will include:
- Capping of ground rents in all existing leases.
- Removing of the two year ownership qualification for the owner of a flat or house to be able to purchase an extended lease for a flat or house.
- Increasing standard Lease extensions from 90 to 990 years
- Removing of the ‘marriage value’ in calculating the value of a flat.
- Stopping the sale of houses on long leases.
- Changing the requirements for enfranchisement for mixed-use premises
There is no guarantee that these proposals will become law before the General Election which is likely to take place in 2024 and they will of course be subject to changes during the Parliamentary process.
These proposals are considered further in this article.
Capping of Ground Rents
The Government has started a consultation process on capping ground rents in existing leases and it will close on 21st December 2023.
The Government would like to cap ground rents on existing qualifying residential leases to assist leaseholders, but this would obviously have a detrimental impact on the income of Landlords and for pension funds, charities and other institutions that invest in residential properties. There are no proposals to compensate Landlords for loss of income.
Various proposals are being considered as to how ground rents should be capped including the reduction of ground rents to zero.
Removal of the Two year Ownership Condition
Under existing law, it is a requirement that a leaseholder must have owned it for a minimum of two years before being able to apply for an extended lease or to buy the freehold of a house.
It is proposed to remove this requirement so that an application for an extension lease could start immediately after a flat or leasehold house has been purchased.
The statutory lease extension is now 90 years for flats and houses and the ground rent is zero. Under the proposed changes the statutory lease extension would be for a term of 990 years at a zero rent.
Removal of Marriage Value
When the length of a lease term is extended there is usually an increase in value. The leaseholder benefits from that increase in value which is called the ‘Marriage Value’. If the original lease has 80 years or fewer to run there is a requirement, as part of the calculation when determining the amount payable by the leaseholder for the extended lease, to split the Marriage Value with the Landlord.
The proposal is to remove the Marriage Value from the calculation as it is considered to be unfair to leaseholders.
Stopping the Sale of Houses on Long Leases
Some Landlords have been selling houses on long leases to enable them to receive ground rents.
As part of a desire to remove ground rents and a public perception that it was not considered desirable for houses to be sold on this basis, the proposal is to stop houses being sold on long leases.
Changing the Requirements for Enfranchisement for Mixed Use Premises
Under current law, if more than 25% of a building is being used for non-residential purposes it is not possible for the residential leaseholders to buy the freehold of the building.
The proposal is to allow the residential leaseholders to purchase the freehold of the building where up to 50% of the freehold is used for non-residential purposes.
This article is intended for general information purposes only and should not be treated as legal advice. No responsibility is accepted by the writer or this firm for any loss arising from actions or inactions taken in reliance upon the contents of this article.
Contact: Richard Greenby, Partner at Lewis Nedas Law