What do the reforms to leasehold extensions mean for my property?

The Government has recently announced long-overdue proposals to reform the way in which leaseholders can extend their leases to make the process fairer and cheaper for them.  This has come as welcome news to many leasehold homeowners who buy their properties only to be left with substantive premiums and professional costs in order to extend the term of the lease sufficiently to allow the property to continue to be mortgageable to most high street lenders or to avoid increasing ground rent costs.  Jenny Colvin, Partner in our Commercial Property team and leasehold extension specialist, explains the changes here, what this means if you are considering extending your lease and a brief summary of how the process currently works.

What are the changes being made to leasehold extensions?

There are several amendments being introduced under the reforms relating to the number of years on a lease, ground rents and premiums.  Specifically, the following changes are introduced:

• Both house and flat leaseholders will now be entitled to a new 990 year lease instead of the current 90 year extension to the existing term.
• The ground rents currently payable on residential leases will be dropped to zero on completion of the extension, alleviating the issues that many leaseholders are encountering with high ground rent charges or doubling ground rent provisions in the lease, which are not accepted by lenders. All new leaseholds will likely have to be granted at a nil ground rent.
• The premium chargeable by a freeholder for a lease extension will take a hit under the new legislation, as the proposals include a standardised premium calculation which will remove any amounts attributable to ‘marriage value’, intending to make the process more transparent and cheaper overall for leaseholders.
• Further measures will be introduced to protect elderly people as all new leasehold retirement homes will require a zero ground rent too. This goes one step further to ensure that those properties built specifically for older people are given the same protection against rip-off landlords as blocks of flats and houses.

What could the future hold for leasehold properties?

The proposed reforms also seek to reintroduce and bolster the commonhold scheme as an alternative to leasehold ownership to allow multi-occupied buildings to be owned outright as freehold, giving homeowners more control over how the block is managed and the costs involved. Many property professionals are sceptical about this, however, as it has had limited uptake historically and can lead to an increase in disputes among neighbours.

Many argue that there is nothing fundamentally wrong with the current leasehold process, which has been in place successfully for decades, but rather that the laws governing unscrupulous landlords need to be tightened to avoid the traps allowing leaseholders to be held over a barrel for large sums of money just to ensure that they can sell their flat. 

It equally remains to be seen what, if any, steps will be taken to protect landlords and developers when the draft legislation is published.

For many leaseholders already undergoing the process of extending their lease, this has raised valuable questions about whether they proceed or wait for the reforms to become law. At present, we do not know when this new legislation will be implemented, therefore it will be a judgment call based on how urgently you need to extend your lease against whether you would be better off waiting.  For some leaseholders this could potentially mean saving thousands of pounds for a much longer new lease adding value to their homes and making leasehold properties easier to sell.

How do I extend the lease on my property?

If you have less than 85 years left on your leasehold property, it would be prudent to consider extending the lease to protect yourself should you wish to sell or re-mortgage the property in the future.  In simple terms, there are two different routes to extending the lease:

• The first is the statutory route, which is available to you if you have owned the property for two years and if you are struggling to contact your landlord or they are not willing to negotiate on the extension.  This results in you, currently, being able to extend by 90 years on top of the remaining term of your lease.  Your ground rent would be reduced with the rest of the lease terms remaining the same. 
• The second is the voluntary route where your landlord voluntarily agrees to extend the lease.  This may be preferential when initially considering extending, particularly as it also means you can negotiate on other terms within your lease if you wish, however it can leave you with a shorter lease overall.

In both situations, it is likely that your landlord will request that you pay their legal fees and those of the surveyor.  The best route for you will be determined by your own personal situation, and we would always recommend you seek legal advice to ascertain the most appropriate option for you.

To have your questions answered about extending your lease and the changes in the laws relating to the same, you can contact Jenny or a member of the team by calling 023 9277 6558 or emailing jennycolvin@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.