‘The current leasehold system is outdated, unbalanced and broken and we are determined to fix it’. These are the ominous words of Leasehold Minister, Lord Stephen Greenhalgh, who earlier this year expressed a view shared by many leaseholders  in England and Wales.

2022 opened up with the Department for Levelling Up Housing and Communities (DLUHC) ramping up their interest  in protecting and advancing the rights of leaseholders, with Housing Secretary, Michael Gove, announcing in January 2022 that there would be a major reset of the current government’s approach to building safety, following the cladding crisis and the Grenfell disaster. Not only this, but the government intends to put an end to ground rents for the majority of new residential leases and lease extensions, meaning thousands of leaseholders of flats are expected to benefit in the future.

The government has just finalised its six-week consultation process, which opened on 11 January 2022,  on their proposals for leasehold reforms. Homeowners and those in the housing industry were invited to share their opinions on the government proposals. Lord Stephen Greenhalgh has stated that the proposals ‘aim to rebalance power and should see more leaseholders than ever before owning the full rights to their homes’. Is this the levelling up we have been waiting for?

These new proposals mean that the right to manage and purchase one’s freehold is going to be extended to a wider remit of qualifying leaseholders who did not qualify before. Currently, if shops or other similar premises comprise over 25% of a  building’s floorspace in a mixed-use development leaseholders are not able to collectively take control of the building. Now the government is proposing to increase this commercial-use limit to 50% of the building’s floorspace, meaning more leaseholders could qualify to take control of the building and participate in the decisions concerning its maintenance.

Government proposals are being introduced to make it cheaper for leaseholders to collectively purchase their freehold. These proposals would see a ‘mandatory leaseback’ introduced, requiring landlords who have a retained flat in the building to keep a lease on these properties. This would result in a reduction in cost for leaseholders who normally have to pay the reversion value for these retained flats.

The cost of enfranchisement is also due to drop further following additional government proposals which were set out in 2021. These proposals include the abolition of marriage value and the introduction of an online calculator with specified rates.

Furthermore, the government is proposing to make changes to encourage greater use of the ‘commonhold system’ as an alternative form of homeownership and is calling for people to offer their views on this. Many other countries, such as America, Australia and across Europe, already use the commonhold model which allows homeowners from the get-go to collectively own the building their flat forms a part of. This means commonhold homeowners have a greater input on the management of the building.

Now that the consultation period is over, the government plans to review all feedback it has received and this will shape their final policy decision, enabling the government to move forward with their extensive series of reforms to the leasehold and commonhold systems.

When can we expect these reforms to happen? Only God knows…

The changes in a nutshell:

• The government intends to put an end to ground rents for the majority of new residential leases and lease extensions.
• The right to manage and purchase one’s freehold is going to be extended to a wider remit of qualifying leaseholders who did not qualify before.
• Proposals are being introduced to make it cheaper for leaseholders to collectively purchase their freehold.
• The government is proposing to make changes to encourage greater use of the ‘commonhold system’ as an alternative form of homeownership.

Not only this, but there are a number of major changes set to be introduced in relation to lease extensions. When the new government reforms come into force, the following changes will be introduced:

• A new standard by which leaseholders will be able to extend their leases without paying ground rent will dramatically increase to 990 years.
• The requirement to pay marriage value as part of the premium will be removed.
• Premium rates will be established and leaseholders will have access to an online calculator which they can use to determine how much they will need to pay in order to extend the lease or purchase the freehold.
• There will be a discount available for leaseholders who have made improvements to the property and a further discount for any leaseholders who have the right to remain in the property on an assured tenancy after the lease has expired.
• A separate approach for the valuation of low-value properties will also be introduced (known as ‘Section 9(1)’ for houses).

These changes will affect leaseholders of flats and houses in England only. When will the changes be introduced you ask? Well, the Leasehold Reform (Ground Rent) Act 2022 obtained Royal Assent on 08 February 2022 and will come into force within six months of this date. This is the legislation which will set future ground rents to zero and is the first part of two-part legislation (which should be in place by May 2024) aiming to reform the leasehold system. The government is set to bring forward a response to the Law Commission’s other recommendations in due course.

Having read the above information you may now be contemplating whether it is still a good time to embark on/continue with the lease extension process, or whether it would be in your best interests to wait for the reforms to come into force. Unfortunately, there is no ‘one size fits all’ answer to this question as ultimately this will depend on your particular circumstances and the factors which have led to you deciding to extend the lease. You may also wish to consider any costs you have incurred so far in the process, as you will be required to pay further costs in the future.

It is advisable to speak to a qualified legal professional with regards to your lease extension, as they will be able to provide you with advice on the best course of action for you to take in light of these reforms.

If you are a leaseholder and you wish to discuss how the above changes may impact you, call us today on 0203 627 9727 or drop us an email at info@hillarycooperlaw.co.uk and a member of our client support team will book you in for a free 30-minute initial consultation with one of our highly qualified solicitors.