Property Investing

The UK government has been under intense pressure to reform leasehold/freehold regulations in England and Wales. The regulations for Scotland and Northern Ireland already differ from England and Wales, and are devolved powers for their national parliaments. So, what can people in England and Wales expect? 

Why the clamour for leasehold reforms? 

In reality, many flat leaseholders have been subjected to ever-increasing ground rents. While these payments initially start at relatively low levels, they may double every 10 years or so and very quickly become a problem. Historically, the majority of houses in the England and Wales were sold as freehold. It is only recently that developers have begun to sell new development properties on a leasehold basis. 

By retaining the freehold, they can increase ground rents and charge leaseholders for an array of different “events”. Make no mistake; this is becoming a huge problem for the UK property market. 

What are the proposed leasehold reforms? 

Before we begin to look at the details, it is important to remind ourselves that extending a lease or buying a freehold still comes at a cost. Many people seem to be under the impression that the new reforms will be “free of charge”. They won’t! 

Some of the changes being proposed include:- 

  • Extending leasehold 

Under current regulations, house leaseholders can only extend their lease on one occasion, for 50 years and will still pay a ground rent. The situation is different for flat leaseholders. They can extend their lease by up to 90 years, as often as they like, for a “peppercorn” ground rent. Under new regulations, house and flat leaseholders will have the option to extend their lease up to 990 years at zero ground rent. 

In order to avoid similar ground rent hikes in the future, there will be a cap on the ground rent payable when a lease is extended or converted into a freehold. 

  • Controlling prohibitive costs 

The cost of extending a lease or converting into a freehold is a mystery to many people. These new reforms seek to abolish prohibitive costs and make everything more transparent. Commonly referred to as the “marriage value”, conversion to a freehold should now be much fairer and cheaper. The proof will be in the pudding! 

  • Protecting the elderly 

As often seems to be the case, issues affecting retirement developments and stand-alone retirement accommodation can easily slip under the radar. This has become a serious problem for many people in retirement, where very often excessive ground rents and “additional charges” from the freeholder have effectively made some properties unsellable. 

The UK government is proposing to restrict ground rents to zero for new retirement developments. At this moment in time, there is no suggestion that existing retirement developments with excessive ground rent increases will see any changes. Surely the government must look further into this? 

  • Restriction on future development 

A number of freeholders have increased ground rent, and introduced new charges, by developing/extending an existing home. Under the new legislation, leaseholders will be able to restrict future development on their property. This in turn will at least cap the charges associated with their lease/freehold arrangement. 

Is this all too little too late? 

The straw which broke the camel’s back for many people was the introduction of leasehold arrangements with new housing developments. This meant that developers were able to retain the freehold rights over large developments, collecting ever increasing fees. Indeed, this has actually created a secondary market where developers have been buying and selling freeholds on a range of different properties. 

The initial indications suggest the government is starting to tackle this problem. As ever, the devil will be in the detail. However, we already know that not everybody will receive the help they need with this round of legislative changes.

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