Further to the widespread reporting in the mainstream press over the last week, the King’s Speech this week has provided a useful update on Leasehold Reform.
Many conveyancers will have clients who are waiting for news on this reform, largely to better understand whether they should extend their lease now or wait for these changes.
This article covers the key points of the announcement, and the implications for residential property lawyers.
990-year lease extensions:
Under the new legislation, all statutory lease extensions for both houses and flats will be for an additional 990 years, rather than the current 90 years for flats and 50 years for houses. Although this is unlikely to apply to informal lease extensions, over time it will reduce the number of conveyancing transactions with a short leasehold.
New leasehold house ban:
While the number of leasehold houses has decreased from a peak of approximately 15% in 2016 to under one per cent last year, the government have tabled a ban. Once enacted, this will mean the chances of being required to conveyance a new leasehold house will be limited to exceptional circumstances.
Abolition of two-year ownership rule:
Under current legislation, to be eligible to extend your lease, the owner must have owned the property for two years.
Many conveyancers will have found that this causes an issue in transactions with a flat with a short lease. This will be particularly true when the term is close to the “80 year mark” where it suddenly gets more expensive to extend.
While this issue can currently be navigated by serving a notice on behalf of the seller and assigning it to the buyer, this adds a level of complexity to a sales transaction that we can all do without, and is dependent on the seller also having owned the flat for at least two years.
Time limits for freeholders to provide information:
There is nothing like a freeholder sitting on an LPE1 form to delay an otherwise proceedable sale.
The new legislation will set a maximum fee and a maximum timescale for providing all of the information the leaseholder requires.
Making lease extensions cheaper / Abolishing marriage value
A key theme of leasehold reform has been the promise to make it cheaper. One of approaches to do this is to abolish the concept of “marriage value”. Marriage value charges the leaseholder an additional fee if they’re extending a lease below 80 years, based on the hypothetical increase in value of the flat from extending the lease.
While this change has not been explicitly spelt out in either the King’s Speech or related briefing, there is a possibility that it will make into the legislation.
Despite this, if you have a client who owns or is buying a flat with a lease near the 80-year mark, the safest advice is to tell them to get it extended before it drops below this point.
For clients with longer leases, unless they have a high ground rent, there is probably less to be gained by waiting.
Capping Ground Rents
Anyone reading press in the last week on leasehold reform may have noticed that the Government have promised to cap ground rents on existing leases.
Clearly this would be fantastic news for leaseholders and conveyancing lawyers alike, because it could mean that there was no need to unpick, understand and advise on the implication of byzantine ground rent terms.
However, capping ground rents would reflect a huge transfer of wealth from freeholders to leaseholders and is likely to be challenged on human rights grounds – so this is far from guaranteed and will be the subject of further consultation.
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The final things which is important to advise clients of is that this legislation has been announced, but it is still a long way from becoming law.
The next general election is likely less than a year away. Unless a draft bill is introduced by Christmas and then the government drive it through the legislative process with the same enthusiasm as a first-time buyer eager to get the keys to their new home, then we might be waiting a few years yet.
This article has been co-authored Linz Darlington, who is a director of Homehold Lease Extensions and Leah Veasey who is solicitor and Legal Director at their in-house firm of lease extension solicitors –
www.homehold.org
