The government has taken significant steps in reforming leasehold ownership of residential property. How its proposals will work in practice, however, is not clear.
After passing through the Commons and the House of Lords, the Leasehold Reform (Ground Rent) Bill received Royal Assent in February, making it an Act of Parliament.
The first phase, the Ground Rent Act, came into force on 30th June 2022. This will restrict ground rents on most new long residential leases in England and Wales to the value of zero, or as otherwise known, a token “peppercorn” rent per year, though this does not currently extend to existing leaseholders.
Today’s Conveyancer recently reported that the second phase of reform will focus on simplifying valuation, including the abolition of marriage value and introduction of prescribed rates for the calculation of market value. An online calculator will also be introduced, with the general aim of ensuring “standardisation and fairness” during in valuation.
Yet, with all these changes occurring, there is no real certainty insofar as how effective it will be in practice. A recent essay published by the Law Society highlighted just how complicated the reforms are, as well as the difficulties property lawyers will face in “[navigating] the legalities of the changes”. Stuart Collar-Brown, co-founder and director of My Auction, said:
“At present, so many protections are in place around leases and if it all changes, there is currently no clarity for property lawyers to know what to do.
With everything around leases being so black and white, it will be a case of trial and error as property lawyers seek clarity on the situation.
This could have a knock-on effect on the industry with property lawyers needing to therefore charge higher fees due to the higher level of work involved.”
Tim Jordan, director of conveyancing in the property group at SAS Daniels LLP, went on to say that the market will simply require time to adjust to the changes. With regards to the short term, he said:
“In my view, proposed buyers or developers should try to be patient before jumping into a purchase or investment too quickly, although of course personal circumstances may dictate otherwise.”
Danny Stern, head of property litigation at Slater Heelis, seemed to share Jordan’s sentiment in terms of how the leasehold market will shape up short-term. He also issued a warning for developers should the legislation be extended to existing leaseholds:
“If the legislation is extended to abolish ground rents in existing leases too, then developers may want to consider selling those leaseholds altogether (if they haven’t already done so).”
Katie Cohen, property partner and leasehold enfranchisement specialist at Keystone Law, envisions a workable Act within five years that will have “overhauled” the leasehold system:
“The amalgamation of an Act covering not only houses but flats also would be welcomed and would represent the biggest overhaul of the leasehold system since the enactment of the 1967 Act, which in practice is difficult to navigate due to many provisions being unworkable and irrelevant.”
Yet, in the short term, Cohen shares the apprehension of Jordan and Stern due to the complex and precarious nature of the legislation and the interests of the involved parties. She concluded that “changes and reforms are of course very much welcomed, but the devil is very much in the detail”.
One Response
A good outcome would be a full commercializaton of HMLR similar to Vehicle Licensing in Swansea.
Equipped with appropriate legislation they could be the first port of call in purchasing leaseholds through set formulae, act as transfer agent and trustee in the case of absent landlords so that sales cannot be held up. Whether freehold investors are dispossessed or have investments wrecked should not be a concern, investments do fall foul of regulatory interventions from time to time. The aim should be a freehold/common hold land register with up to date ownership for every square foot of UK land by the end of 10 years