Government reforms mean homeowners can extend their lease by 990 years at zero ground rent, a major shakeup that could save millions of leaseholders thousands of pounds.
On the 7th January, Housing Secretary Robert Jenrick announced major reforms to English property law by creating a new right for leaseholders to extend their lease by 990 years at zero ground rent.
Terminology
Freehold property: homeowners own the property outright i.e., the property itself and the land.
Leasehold property: homeowners do not own the property outright but only have the right to live there for a set period i.e., they only own the property and not the land.
Ground rent: regular payments made by the leaseholder of the property to the freeholder. This can be a fixed sum every year, or it can escalate over the course of the lease.
Leasehold System
Under current rules, leaseholders of apartments have the right to extend their lease as often as they want at zero ground rent for 90 years – so-called ‘peppercorn’ ground rent. In comparison, leasehold house owners can only extend their lease once for 50 years in what can sometimes be a complex process. In addition, leasehold homeowners usually pay ongoing ground rent. How much ground rent you pay depends on a complex formula that links the value of the property to the length of the remaining lease and the ground rent. This amounts to approximately £447 million being spent in ground rent every year in the UK.
The leasehold system has come under increasing speculation due to reports of high ground rents and unreasonable costs for extending a lease. In 2017, the National Association of Estate Agents – which Rickman Properties is an active member of – uncovered poor leasehold practices leaving thousands of homeowners feeling ‘trapped’ in their leasehold. In June 2019, the Competition and Markets Authority (CMA) formally launched an investigation into the leasehold system to check it was fair for home buyers, resulting in a major shake-up of the system this year.
Reforms to Leasehold System
On the 7th January 2021, the government announced major reforms to the leasehold system. The changes mean both house and apartment leaseholders can extend their lease by up to 990 years and no longer pay any ground rent. Millions of homeowners with leasehold properties could save hundreds to thousands of pounds every year.
Housing Secretary Robert Jenrick MP said,
“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive. We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners. These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”
When Will the Reform Come Into Effect?
On the 11th January, the Housing Secretary announced that leasehold reform would be tackled through two pieces of legislation. According to the government, the primary piece of legislation that will set future ground rents to zero will be proceeded in the forthcoming Parliamentary session i.e., most likely this year. This means there is no set timing for this legislative change to come into effect as of yet, but experts suggest it is likely to take at least a year before it does.
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