This year kicked off with a government announcement that promised the most sweeping housing reforms in forty years - with an estimated 4.5 million leaseholders in the country given the right to extend their lease for up to 990 years at zero ground rent. The reforms will also see protection for retired leaseholders and the way being paved for the return of Commonhold. Industry experts, however, have advised caution, saying the reforms do not go far enough or provide enough detail. We take a look at the key changes in the proposal and their pros and cons.

Zero ground rents for those who extend their leases

For

Currently, freeholders are allowed to increase the amount of ground rent they charge at will. When combined with a mortgage, these charges can make leaseholders feel like they're paying rent for a property they own. The Government's leasehold reform proposal will ensure any leaseholder who chooses to extend their lease will no longer pay any ground rent to the freeholder, allowing them to fully own their home.

Against

Critics of the scheme have pointed out that existing legislation has already reduced ground rents to insignificant amounts and the Government would be better placed to deal with service charges or 'marriage value' (the fee due to a freeholder when the lease duration falls below 80 years).

 

The ability to extend a lease to 990 years

For

One of the most celebrated parts of the proposal is the option to extend the leasehold of a property to 990 years (currently leaseholders of houses can only extend 50 years (with ground rent), while leaseholders of flats can extend up to 90 years (with zero ground rent)). The Government is promising an online calculator to allow leaseholders to calculate the costs involved.

Against

This has been criticised as 'window dressing' because no details or timeframe have been provided. The Leasehold Group thinks it might do more harm than good by creating a fourth tier of ownership. They also say that in terms of value added, a property with a lease of 990 years is not incrementally more valuable than a property with a lease of 90 years, making the extension largely irrelevant.

 

More protection for retirement leasehold changes

For

Legislation to restrict ground rents to zero for new leases will also apply to retirement leasehold properties, protecting the elderly from ground rents rising on their properties.

Against

This part of the lease reform proposal is largely seen as positive, but some say it is not going far enough. While the removal of ground rents is a good thing, exit fees payable to the freeholder when selling or sub-letting can be up to 30% of the property's value. Critics say this will need to be abolished entirely for the elderly to be fully protected.

 

Return to Commonhold

For

The changes are being heralded as part of a drive towards Commonhold. When it was introduced in 2002, Commonhold was designed to reduce the power of corporate freeholders. Owning a commonhold to a property (or unit) within a house or block was equivalent to owning the freehold to it. Your Commonhold automatically made you part of the building's commonhold association (CA). Only unitholders in the Commonhold could be members, and the freehold (and thus responsibility) to the building's communal areas was split equally between CA members, meaning only those who had a real stake in the property got to make decisions about it.

Against

Between 2002 and 2018, when the scheme ran, take-up remained low, because banks and mortgage lenders were unwilling to take a chance on a new form of ownership and people worried about a concept that relied on the best of human nature. For Commonhold to be a success, the Government might need to offer strong incentives to developers, lenders and buyers.


The eBook Breaking Down Barriers: The EWS1 Form summarises a webinar entitled What Should Block Managers Do in Respect of EWS1 Forms? that we had in August 2020 with a panel of key sector leaders from ARMA, IRPM, PM Legal Services and RICS.

Breaking Barriers -  EWS1 Form_Featured

 

Joe Parish

Joe Parish

Joe loves to read on property management. He has also recently adopted a Peaky-Blinder-esque fashion sense and a positive attitude to adjectival hyphenated phrases.

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Joe Parish
By Joe Parish