Will It Get Cheaper For Leaseholders To Buy Freehold Or Extend Leases In The Future?

Laura Severn, Director at LMP Law, answers one of the questions she hears time after time.

Last year I was tasked with predicting the future of leasehold law. As I mentioned in last year’s article in Flat Living, I have become acutely aware that consumers are become savvier with their knowledge of the property management industry and leasehold ownership, which I think can only be a good thing.

The Government has been really busy of late (I wonder why….), but they are still progressing with leasehold reforms for better consumers’ rights, meaning that great property managing agents and genuinely hard-working landlords will be safer in their place in law. With more transparency it gives the agents and leaseholders more awareness and understanding of the law and the rights surrounding leases.

More than six million properties in England and Wales are leasehold, according to the Leasehold Knowledge Partnership, so it’s imperative the law, property managing agents, developers, surveyors and leaseholders work closer together.

Law Commission

You may or may not have read or heard the latest news from the Law Commission, which has published options for reforming valuation in leasehold enfranchisement. It’s a subject that has been widely discussed over many years now, and we’ve seen experts parachuted in from international sources to speak and educate our UK system whilst dovetailing talks with the Government, developers and property management professionals.

The policy objectives of enfranchisement reform identified by Government are:

  • to promote transparency and fairness in the residential leasehold sector
  • to provide a better deal for leaseholders as consumers
  • to simplify enfranchisement legislation

Why now?

For a long time now the subject of residential leasehold has been the subject of prominent policy debate. Concerns have been raised about many aspects of the leasehold market.

Why?

  • Mainly because of some escalating ground rents (such as the imposition of rents which can double at periodic intervals during the term of the lease). Another reason why we, as property law specialists, advise managing agents and leaseholders on the value of understanding their lease and when extending a lease to instruct a qualified lawyer who is a specialist in property law;
  • leasehold homes being hard to mortgage or re-mortgage because of escalating ground rents, making the properties deemed unsaleable and trapping the owners in their homes;
  • houses being sold on a leasehold basis, as opposed to freehold, basis, for no apparent reason; and
  • charging by landlords of unreasonable permission fees to carry out alterations to a property.

So, What Are The Options?

The options have been researched in essence, to make it cheaper or at least “fairer” for leaseholders to buy their freehold or extend their lease. Not only are the reforms looking to help provide potential cost reductions for the leaseholder, but also to provide clarification about the valuations provided in leasehold enfranchisements.

Options:

A review of the process regarding leaseholders’ rights to:

  • participate, with other leaseholders, in the collective purchase of the freehold of a group of flats
  • extend the lease of their house or flat
  • purchase the freehold of their house

So What Does This Mean For Flat Owners?

Flats are generally owned on a leasehold, as opposed to freehold, because of certain obligations required to pay money or to perform an action in relation to that property (such as to repair a wall or a roof).

The reforms aim to benefit leaseholders by reducing the cost that they have to pay to buy the freehold or extend the lease of their homes (known as “enfranchisement”), plus making the process simpler.

Comments

Further to the Law Commission’s report, there have been many comments, including:

The Housing Secretary Rt Hon Robert Jenrick MP commented:

“…We have already committed to addressing the abuses of leasehold seen in recent years, by reducing ground rents to a peppercorn level and limiting new leasehold to apartments, save in the most exceptional circumstances. The Competition and Markets Authority is examining the alleged misselling of leasehold properties and I will also await their findings with interest.”

Professor Nicholas Hopkins, Property Law Commissioner said:

“We were asked to provide options for reform that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords. This is what we’ve done.

“We are ready to help the Government in implementing whichever options for reform they choose.”

Conclusion

Transparency and fairness can only be a good thing for UK residential living. We are a nation of home lovers and to be able to understand our property, our lease term, ground rent and general legalities surrounding it, can only be a positive step. So many of the flats we live in are managed by exceptional property management agents and as I’ve mentioned before, knowing the value of a lease is vital to ensure that all steps are taken to protect or enhance it.

Ultimately, anyone thinking of buying a leasehold property should go through the contents of the lease with a solicitor to understand what is expected of them. Have open chats with your managing agent and be sure of all the terms and conditions before you sign on the dotted line, it could avoid disputes arising in the future and watch this space as to whether the proposals will be put in to action.

Laura Severn is a Director at LMP Law, specialist lawyers with a keen focus on the property management industry, with over 20 years combined experience in property law.

Article first published in Edition 44 of Flat Living Magazine.