Leaseholders could see cost of extending or buying freehold slashed

 

Buying a freehold or extending a lease can cost homeowners tens of thousands of pounds, so the latest housing reform proposals are likely to be welcomed by many.

The Law Commission has come up with two options to reform the current leasehold system in the UK after being asked by the now Home Secretary Sajid Javid to find a way of making buying a lease “easier, faster and cheaper” in December last year.

One suggestion put forward by the Commission is to allow homeowners wishing to convert their leasehold agreement into a freehold ownership to pay just 10 times their current ground rent charge, which could cut the cost by thousands.

While ground rents can vary massively from property to property, from a “peppercorn” £50 a year escalating to thousands of pounds in rare cases, it is thought the average charge is around £350 a year. This would mean a leasehold homeowner could potentially pay just £3,500 to buy the freehold, compared to the typical £10,000-£40,000.

Scrapping “marriage value” for lease extensions

The Law Commission has also put forward a new method for calculating the cost of extending the lease, to replace to current “marriage value” system. Marriage value means that any “profit” seen to be made by the increased value of a property once the lease has been extended is split between the leaseholder and the current landlords or freeholder, which applies to any property where the lease has fallen under 80 years.

Under the new proposal, leaseholders would have the right to extend their lease for up to 250 years, while ground rent charges would also be scrapped, with a new process for calculating the cost more fairly.

With around 4.2 million properties currently owned on a leasehold basis is England, according to government statistics, the plans will affect millions of homeowners – but they are likely to be much less popular with freeholder landlords.

The impact of reform

The Law Commission said: “Any changes to the law that government takes forward will have to comply with human rights legislation and take account of the impact of reform.

“And while some changes – in particular the options that we have been asked to present to reduce the premium payable by leaseholders – will inevitably benefit leaseholders at the expense of landlords, that is not the case across the board.”

A landmark legal challenge brought earlier this year against a major London freeholder, the Sloane Stanley Estate, regarding a small flat in Chelsea, ended in favour of the freeholder but sparked calls for a drastic reform of the “unfair” system for leaseholders.

Property expert Henry Pryor tweeted a clip from the BBC discussing the new proposals:

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Leaseholders could see cost of extending or buying freehold slashed

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