If you are a leaseholder, this new bill will affect you! 🫵
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Following the King's Speech on 7th November, the Government have set out plans for Leasehold reform📜
📩 Below is is a summary from Rightmove's recent article, for the full version click here 📩
What is a Leasehold property?
🔹A leasehold property is where rather than owning the property and the land outright i.e. Freehold, you buy the right to live in the property for a fixed number of years i.e. Leasehold
🔹The land will continue to be owned by the Freeholder, to which you'll pay a Ground Rent
🔹In most cases, you'll pay Service Charges (generally, for the insurance and maintenance of the building and its grounds)
🔹The Lease is an agreement that states how long you own the property before it is legally returned to the Landlord (or Freeholder) - typical leases are 99 and 125 years
🔹There will also be other terms outlined in your lease, such as the type of alterations you’re permitted to make to your home, how you and the Freeholder will share costs for any maintenance work, and how much ground rent you owe
What is the Leasehold Reform Bill and what does it mean for homeowners?
🔹The Leasehold Reform Bill is a proposed change to the law which, if passed, will alter some of the rules and regulations around leasehold properties
🔹If you are a leaseholder, it will certainly have an impact on you!
Why are things changing?
🔹The intention of the bill is to give Leaseholders greater rights and powers
🔹Historically, many Leaseholders have found themselves subject to costs from ground rent, lease extensions and service charge changes, and they’ve found it difficult to contest these issues
If passed, the reforms will affect a few key areas:
🔸The bill would make it less complex, cheaper and quicker to extend your lease, or buy your freehold.
🔸Standard lease extension terms would increase to 990 years for houses and flats
🔸This is up from 50 years for houses and 90 years for flats
🔸As things currently stand, it gets more expensive to renew a lease as they get closer to expiry
🔸Under 80 years and you'll be liable to pay 'Marriage value' - this is where you would be liable to pay the Freeholder 50% of the uplift in your property's value when the lease is extended
🔸Example: property value of £500,000 with 75 year lease. When extended to 990 years, a buyer would be prepared to pay more, let's say £700,000 which means, a Marriage Value payment to the Freeholder (50% of the £200,000 difference)
🔸And under this reform, the marriage value would be scrapped
🔸Greater transparency over service charges where bills would need to be shared with Leaseholders, so they can assess and challenge if required
🔸The reforms would also look to rebalance legal costs and make it easier for Leaseholders to challenge Freeholders over unreasonable charges (Leaseholders will no longer have to pay their Freeholder’s costs when making a claim)
🔸Managing Agents are already required to belong to a redress scheme. Under the new rules, Freeholders who manage their building directly will do as well
🔸Greater rights to those in mixed-use blocks of flats - at the moment, Leaseholders in these buildings can’t take over the management of the site or buy the Freehold if more than 25% of its floor space is commercial. Under the bill, this figure would increase to 50%
🔸The scrapping of the two-year rule! The current rule states that Leaseholders must own their house or flat for two years before they can extend their lease or buy their freehold - the reform would scrap this rule
🔸The sale of new leasehold houses would be banned, so every new house in England and Wales would be Freehold
When will the Leasehold and Freehold Reform Bill become law?
🔹For now, there has been no announcement on when the new reforms will become law
🔹Michael Gove has said he’s confident that the bill will be passed before the next General Election, which is predicted to come in the Spring of 2024
🔹It's worth noting that all the reforms put forward in this draft might not make it into the final bill – it will all depend on how MPs vote on the measures put forward
📢 It’s also important to remember that any future Government may not commit to any of these current recommendations 📢
💬 Having said this, Shadow Housing Minister Matthew Pennycook had this to say, "If this thin gruel is all we're getting in the King's Speech, Leaseholders will have been failed. Labour would fundamentally and comprehensively reform the Leasehold system".
🚫 The legislation is disappointing for those already owning a Leasehold house or flat as not much will change (as yet)
🚫 Despite campaign groups insisting the Government takes bolder steps by abolishing new Leaseholds on flats, there are no plans to do that at this stage
🚫 The Government hasn’t gone as far on existing ground rents and has just said it will consult on capping these fees
🚫 Yes, the Ground rates for existing leases will be capped but the legislation is unclear at what rate
🚫 Plans do not go far enough: as there is nothing here to tackle high service charges and freeholders taking commissions from suppliers on routine and major works
💬 "The Leasehold system is antiquated and complex beyond belief. I would have liked to see a ban on all Leasehold property (not just houses) and a move towards Commonhold for communal living (as it is across the world) - Ali Baylav, Managing Director at Cavendish Residential.
Do you have a Leasehold property? Are you in the process of buying or selling a Leasehold flat? If you would like further detail or advice email Emma for the best advice (emma.travers@cavendishproperty.co.uk) 📧
📸 Emma Travers: Property Sourcing, Conveyancing and Acquisitions at Cavendish Residential 📸
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