If you own a leasehold flat, or are thinking about buying one, you’d be forgiven for being confused by the myriad of announcements on leasehold reform and how they could affect you.
This looks at the changes and how they could make it easier for you to extend a lease or purchase your freehold. It also considers how they should make flat ownership fairer.
Making it “cheaper and easier” to extend your lease or purchase your freehold.
Under the current regime you have a right to extend your lease or purchase your freehold, but doing so is expensive.
Removing Marriage Value: Currently, the cost of extending your lease will shoot up as soon as it falls below 80 years due to a charge called “Marriage Value.” Under the new legislation you won’t have to pay this.
Ground Rent Cap – but only in Lease Extension Calculations: During the process of getting a lease extension, or purchasing the freehold, you need to pay a lump sum to eliminate future ground rent payments. Under the new rules, ground rent will be capped in calculations at 0.1% of the property’s value. E.g. If your flat is worth £250,000, then the cap would be £250 per annum.
Freeholders to Cover Their Own Costs: Currently, if you extend your lease, you must pay not only your own legal and valuation expenses, but also your freeholder’s. In future, your freeholder will have to pay their own costs – in most cases.
Simplification of Lease Extension Calculations: Currently your valuer, and the valuer your freeholder employs, will dispute your lease extension price, based on a loose calculation. The new reform will leave less up to negotiation, but it won’t go as far as setting a price. In some cases, you might find your lease extension getting more expensive – for example this could be true if you have a lease above 80 years or have a ground rent below the cap.
Extended Lease Terms (Up to 990 Years): The current 90-year extension will be replaced with 990 years. While this seems great, it has limited practical value – if you’ve extended under the current legislation your lease will likely see you out, and you can extend it again inexpensively anyway.
Removal of Ownership Period: Previously, you would have to have owned your flat for two years before extending their lease. This requirement was removed in January this year.
Making owning a flat fairer
Under current legislation, a freeholder can manage the block of flats how they see fit (with some limitations).
It is not easy to challenge their charges (e.g. maintenance, insurance) or to wrestle control from them if you’re not happy with the way they’re running things. The following changes from the Leasehold and Freehold Reform Act 2024 will make life easier for you.
Making “Right to Manage” Easier: Making it easier (and cheaper) for you to take over the management of your block – or appoint a managing agent of your choice. These changes came into force in March.
Standardised Bills: Requiring your freeholder or managing agent to issue bills in a standardised format, which are easier for you to scrutinise and challenge.
Fairer Legal Costs: Removing the expectation that you will pay your freeholder’s legal costs if you challenge excessive charges or poor practice
Banning Opaque Charges: Replacing the current commissions paid to freeholders and managing agents.
The new Leasehold and Commonhold Reform Bill is expected to make existing leasehold ownership fairer and also install Commonhold as a default replacement and mandate it on new blocks of flats.
Commonhold will see you, and your neighbours, collectively managing your block instead of having a third-party freeholder in charge.
It is important to note that if you live in an existing block, it won’t automatically be converted to Commonhold – you can expect to have to follow a process (and pay a price) similar to the existing process for purchasing a freehold.
Be warned, these changes are likely to take some time. Most of the changes around making lease extension and freehold purchases cheaper come from the Leasehold and Freehold Reform Act 2024, which was passed by the Conservative Government. These changes are expected to trickle through in the next two or three years – but could be longer.
The second set of changes are contained in the more ambitious Leasehold and Commonhold Bill from the current Labour Government. This Bill is at the beginning of its journey – and is likely to take the whole of this parliament to come into force.
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