Friday, 8 January 2021

Government Announces Leasehold Reforms

The government has announced leasehold reforms they say will be part of the “biggest reforms to English property law for 40 years”.

Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent.

Under current rules, leaseholders of flats can extend their lease at a zero ‘peppercorn’ ground rent, but usually only for 90 years. Leaseholders can also face high charges to extend their lease. For leasehold house owners, which face slightly different rules, they can also face barriers when they look to extend their leases.

The announced changes mean both house and flat leaseholders will be able to extend their lease to a new standard 990 years with a ground rent at zero.

An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

The government is abolishing prohibitive costs like ‘marriage value’.

Practitioners in this field are irritated that the announcement has been made in advance of more detail, but the general thrust of what is being proposed will be welcome.

One thing I haven't seen mentioned is the fact that if these 990 years leases at nil ground rent also do not include forfeiture clauses, then they create the right to be enlarged into freehold titles under Section 153 of the Law of Property Act 1925.

Where that happens, two freehold titles exist side by side, the original landlord’s title and the newly enlarged title.

A simple way round that would be to include a forfeiture clause, although it should exclude forfeiture for insolvency for the property to be mortgageable.

Leasehold enfranchisement is a notoriously complex area of practice, and previous legislation has been a nightmare to navigate.

It will be interesting to see how this reform progresses.

The government also wants to press ahead with plans to reinvigorate commonhold as an alternative form of property ownership.

The government is establishing a Commonhold Council - a partnership of leasehold groups, industry, and government - that will prepare homeowners and the market for what it hopes will be the widespread take-up of commonhold.

Last year the Law Commission published three reports on Commonhold, Leasehold Enfranchisement and Rights to Manage.

The commonhold report was called “Reinvigorating commonhold: the alternative to leasehold ownership”.

I summarised these proposals in July 2020.

It seems my cynicism about whether anything would happen may have been misplaced!

Professor 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.”

Whether that proves to be the case will ultimately be down to developers and lenders.

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