On 7 January 2021, the Housing Secretary announced extensive reforms which will allow leaseholders to extend their leases by 990 years and reduce ground rents to nil. This comes as part of the biggest reforms to English Property law for over 40 years.
The new legislation forms the first part of the package of reforms proposed by the Law Commission last year.
It became common practice for house builders to sell new build houses on a leasehold (rather than the more traditional freehold) basis. This allowed the house builder to then retain certain rights as a landlord.
Such rights, which has been published extensively in the news, included the ability to charge onerous fees as ground rent or service charges. It has effectively become an additional avenue for residential house builders to generate an income following the sale of the property.
The current position only allows leaseholders (homeowners) to extend their lease, often at a substantial cost, by a further period of between 50 years and 90 years depending on whether the property is a flat or house.
The current positions also has the burden of an escalating ground rent provisions in leases. It has been well reported that in some cases, homeowners have seen the ground rents due and payable double every 5 or 10 years. This position often left homeowners feeling trapped in their property as many viewed the properties as unsellable.
CHANGES PROPOSED UNDER THE REFORMS
A number of changes will be introduced under the proposed reforms which may include:
• Leaseholders will have the right to extend their leases by a maximum term of 990 years.
• There will no longer be any requirement to pay any ground rent to the freeholder.
• There will be a cap on ground rent payable when a leaseholder extends a lease or becomes a freeholder.
• The government’s commitment to restrict ground rents to zero for new leases will now extend to retirement leasehold properties – a move to protect the elderly which will be welcome news.
These are only proposed reforms at the moment so it will be some time before these are enshrined in law and we await a further update in due course.