Government reforms to allow leaseholders new rights in relation to lease extensions

If you own your property pursuant to the leasehold regime, then your lease is commonly regarded as a depreciating asset.

The amount of time left on the lease is a factor which dictates the amount a leaseholder must pay by way of a premium to the landlord to extend it. The premium can be expensive, especially when factoring in legal fees and costs of an expert to determine a suitable sum, in the event of a dispute. It is also hard to predict what amount an expert will determine as a suitable sum for the premium.

Additionally, the existing statutory process only permits a maximum addition of 90 years for a leasehold flat and 50 years for a leasehold house. The issue here is that once the lease approaches 80-60 years left of its life, most lenders will want a lease extension prior to releasing mortgage monies. This can leave leaseholders requiring a large initial outlay to make their property attractive in the event that they wish to sell to someone who needs to purchase their property with the assistance of a mortgage.

Announcement

The Government is assessing reform in the leasehold sector. Steps are being taken across the industry to reform it and lease extensions have now received an indication that reform will soon be implemented via legislation. On 7 January 2021, the Housing Secretary, Robert Jenrick MP announced that leaseholders will be able to extend their leases to new 990 year leases. As part of the process, the ground rent in the leases will be set to zero. This will be beneficial to leaseholders who have significant increases between ground rent reviews.

The announcement also insinuated that the process for determining the amount of premium payable to a landlord for a lease extension will also be much simpler, with an online calculator introduced to find out the cost.

Comments

There still needs to be guidance about how this will operate in practice, but it is a clear intention that Parliament intends to enact legislation that leaseholders will benefit from a significant increase in the length of their leases. The significant increase to a lease means that the concern of whether a property is capable of receiving a mortgage will be put off for many generations. Additionally, the proposed online calculator may remove the initial uncertainty of how much a leaseholder will have to pay in relation to the premium to the landlord.

Potentially, there will be “hold ups” of leaseholders who are approaching the “80 year left to run mark”, who will be taking stock, prior to deciding whether or not they should implement a lease extension now, or wait to do this when the new measures are introduced.

It will be interesting to see how Parliament tackles these promises, and many leaseholders will no doubt be waiting for further details.