Leasehold Reform in 2021: Evolution or Revolution?

In January 2021, the UK Government issued a press release trumpeting the “biggest reforms to English property law for 40 years”. However, will leaseholders really see any benefits? If so, to what extent and when?

Should leaseholders wait before extending their lease or buying the freehold?

Announcement

On 7 Jan 2021, the Government issued a press release outlining a number of measures claiming that “millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent”. The government also stated it’s intention to “abolish prohibitive costs like marriage value” (which come into consideration for leases of under 80 years); to provide an online calculator and to reinvigorate Commonhold.

Analysis

We at The Freehold Collective have been involved with the Law Commission’s process for leasehold reform from the start so the announcement was as expected.

Residential property law in the UK, which is fundamentally based on laws from feudal times, has undergone several reforms over recent decades, rebalancing the interests and responsibilities of leaseholders and freeholders. Whilst the current system is very mature, improvements can always be made so the question is: how many of the new proposals will actually make it into law and to what extent and when?

  • Ground rents are effectively an outdated tax. For new build properties there is no reason why they cannot be abolished. For existing properties it’s hard to see how they could be abolished retrospectively, without freeholders being compensated by some other means, or how the UK Courts would allow that to happen.
  • Allowing leaseholders to extend by a maximum of 990 years (rather than by 90 years) will likely be accepted by all parties. Given that the cost will be almost the same, leaseholders would see very minimal benefit. In fact, this proposal would increase the costs to leaseholders, albeit by only a nominal amount.
  • The removal of marriage value will likely be welcomed as a simplification of the the existing system. However the government’s announcement that it will remove marriage value comes with a caveat that they would do so by changing various ‘rates’ used in the calculation. Again it is difficult to see how they would be able to implement any system in law that deprives one party of much of their value.
  • An online calculator would again be welcome but a one size fits all model could lead to further disputes.
  • Commonhold is a good idea but will be years in the implementation and will face certain challenges. (See Commonhold: What’s all the Fuss About?)
  • The government plans to address future ground rents in the current session of Parliament. However, as per The Leasehold Advisory Service, there is no timescale for most other proposals or guarantee of what options may or may not be adopted for current leaseholders. The earliest that any meaningful changes might be implemented appears to be in the May 2024 session of parliament.

Conclusion

Whilst many leasehold groups have welcomed the proposals, others have denounced them as “window dressing”.

For leaseholders deciding what to do, delaying a lease extension or collective enfranchisement claim might be worthwhile in the case that the government can force landlords to accept less in compensation than they would today and if the reduction in premium is significant and if those reforms come quickly and are not challenged in the Tribunals and Courts.

Conversely, in all other circumstances, a delay could be very costly. Leaseholders who want to sell their flat may find themselves having to reduce the sale price, as the time on their lease shortens. Those wanting to extend their lease will have a later valuation date and will not ‘stop the clock’. Those unhappy with management or their freeholder will not see any change.

Should I wait?

We think not.

Unless and until the government guarantees actual cost savings and the timescale, leaseholders should exercise their rights without delay.