By Ashley Young-
Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent, the Housing Secretary Robert Jenrick has announced today .
The measures come are part of the biggest reforms to English property law for 40 years, fundamentally making home ownership fairer and more secure.
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The change will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder.
An estimated 4.5m households in England and Wales own their homes on a leasehold basis and pay an annual ground rent to the freeholder of the property – often an investment firm – which, through the lease, grants the right of the homeowner to live there.
Cap
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A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder.
An online calculator will be launched to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
According to the government, today’s changes could save some leaseholders thousands, to tens of thousands of pounds
According to the government, today’s changes could save some leaseholders thousands, to tens of thousands of pounds.
Under the current law many people face high ground rents, which combined with a mortgage, can make it feel like they are paying rent on a property they own.
The Ministry Of Housing said freeholders can increase the amount of ground rent with little or no benefit seen to those faced with extra charges. It can also lengthen and lead to increased costs when buying or selling the property.
Today’s changes will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder, enabling those who dream of fully owning their home to do so without cumbersome bureaucracy and additional, unnecessary and unfair expenses
Housing Secretary Rt Hon Robert Jenrick MP said:
”Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.
We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.
Commonhold Council
The government is also now establishing a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare homeowners and the market for the widespread take-up of commonhold.
The commonhold model is widely used around the world and allows homeowners to own their property on a freehold basis, giving them greater control over the costs of home ownership. Blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too
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.
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 changes mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.
Abolishing Of Prohibitive Costs
The government said it was abolishing prohibitive costs like ‘marriage value’, and set the calculation rates to ensure this is fairer, cheaper and more transparent. 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.
Further measures will be introduced to protect the elderly. The government’s previous restricting ground rents to zero for new leases to make the process fairer for leaseholders. This will also now apply to retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.
Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.
Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in this Parliament. We will bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.
Law Commission
The Law Commission published their report on enfranchisement valuation ’Report on options to reduce the price payable’ in January 2020 and their reports on enfranchisement, commonhold and right to manage in July 2020. These reports can be found on the Law Commission’s website.
Marriage value assumes that the value of one party holding both the leasehold and freehold interest is greater than when those interests are held by separate parties. Today’s announcement will remove marriage value from the premium calculation.
‘Modern ground rent’ is the rent (determined under section 15 of the 1967 Act) payable during the additional term of a lease extension of a house (under the current law). It is calculated by valuing the “site”, and then decapitalising that value.
Many long leases specify an annual ground rent of a ‘peppercorn.’ A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable.
Under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn rent. Today’s announcement means that both house and flat leaseholders will now be able to extend their lease to 990 years with a ground rent at zero.
The formula used to work out the cost to leaseholders for buying the freehold or extending the lease includes a discount for any improvements the leaseholder has made, and a discount where leaseholders have the right to remain in the property on an assured tenancy after the lease expires. These existing discounts will be retained, alongside a separate valuation methodology for low-value properties known as ‘section 9(1)’
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