Proposed Leasehold Changes in the UK in 2021

On 7th January 2021, Robert Jenrick, the Secretary of State for Housing Communities and Local Government announced that new legislation is planned which will allow leaseholders to extend their leases to a new standard of 990 year, with zero ground rent.

What is a leasehold property in the UK?

For those unfamiliar with the term – when your purchase a leasehold property, it means that you own the property itself, but not the land on which the property resides. When it comes to purchasing an apartment in a new build development, in most cases the property will be purchased as a leasehold (though in certain circumstances such as small conversions, the property may be “share of freehold).

Ownership of your property is also for a set period, which can be a number of years, decades or centuries, depending on the length of your lease. If your lease expires, ownership of your property technically passes to the freeholder.

Leasehold reform 2021

In a further announcement Jernrick stated that leasehold reform would be tackled via two pieces of legislation.

A Bill in the forthcoming session will “set future ground rents to zero”. This will also apply to retirement properties, but commencement in respect of retirement properties will be delayed for a period.

Future legislation will:

  • Reform the process of enfranchisement valuation used to calculate the cost of extending a lease or buying the freehold.
  • Abolish marriage value.
  • Cap the treatment of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value. An online calculator will simplify and standardise the process of enfranchisement.
  • Keep existing discounts for improvements made by leaseholders and security of tenure.
  • Introduce a separate valuation method for low-value properties.
  • Give leaseholders of flats and houses the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”.
  • Allow for redevelopment breaks during the last 12 months of the original lease, or the last five years of each period of 90 years of the extension to continue, “subject to existing safeguards and compensation”.
  • Enable leaseholders, where they already have a long lease, to buy out the ground rent without having to extend the lease term.

The changes will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder. For some leaseholders, these changes could save them tens of thousands of pounds.

A cap is also being introduced on ground rent payable when a leaseholder chooses to either extend their lease or become a freeholder. An online calculator will be available to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

Additionally, the Government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is that the costs are more transparent, fairer and probably cheaper. For those investing in UK leasehold property, these changes could potentially save tens of thousands of pounds and help to create more transparency within the process.

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