Monday November 13, 2023
In the realm of property ownership, leasehold arrangements have long been a source of contention and frustration for homeowners. The British government has been toying with the idea of leasehold reforms since 2017, and recent developments suggest that change is on the horizon. Let’s take a closer look at the proposed alterations, their potential impact, and the complex journey ahead.
The 990-Year Lease Extension: A Generous Gesture?
At first glance, the government’s proposition of a 990-year lease extension might seem like a generous concession to leaseholders. However, the devil lies in the details. Surprisingly, the difference in value between a flat with 175 years left on the lease and one with 1075 years remaining is estimated to be less than £100. Yes, you read that right – less than a hundred pounds.
To put it into perspective, extending a £200,000 flat with 175 years left on the lease for an additional 900 years under the current legislation would cost less than £100 in total. The inexpensive nature of extending very long leases raises concerns about the potential for 990-year extensions to be more costly than 90-year extensions.
The Likelihood of Legal Implementation
Despite the seemingly minimal financial impact, the chances of the 990-year extension becoming law are high. The government has consistently promised this change, and it stands as an easy win with limited contention. However, questions linger about the government potentially hiking up extension costs by tweaking deferment rates, justifying the increase by arguing for a higher value in the extended lease.
Two-Year Waiting Period: A Thing of the Past?
Another proposed reform involves removing the two-year waiting period before lease extension or freehold purchase becomes possible. The government suggests that eliminating this requirement would simplify the legal process for conveyancers, making it more convenient for property buyers or sellers with short leases. This change is likely to benefit anyone in such a situation, easing the process of lease extension.
Banishing Leasehold for New-Build Houses
In a move that has been promised since 2017, the government aims to outright ban the sale of new-build houses as leasehold properties. With the percentage of new houses sold as leasehold dropping significantly, this seems like a non-contentious pledge. The ban, if enacted, stands to benefit those buying new-build houses that could have previously been sold under leasehold arrangements.
Addressing the Marriage Value Conundrum
Leaseholders dealing with short leases eagerly await the potential abolition of Marriage Value, the hypothetical profit made when extending a lease with less than 80 years remaining. While the government has hinted at scrapping Marriage Value, it remains uncertain. There’s speculation that the abolition might be offset by introducing hope value or applying the change only to owner-occupiers, leaving landlords unaffected.
Ground Rent Caps and Their Implications
The government is considering capping ground rents on existing leases, offering five potential options ranging from complete abolition to freezing at the current ground rent. This could significantly reduce outgoings for leaseholders paying high ground rents, making lease extensions more affordable.
Costs and Rate Standardization: The Fine Print
Several proposed changes involve standardizing rates in lease extension calculations. This includes setting fixed rates like the Deferment Rate and the Discount Rate, potentially streamlining the process and saving time and costs for both parties involved. However, the extent of the government’s involvement in setting these rates remains uncertain.
To Extend or Not to Extend: A Dilemma for Leaseholders
With all these potential changes looming, leaseholders find themselves at a crossroads. The decision to extend or wait for reforms is challenging, especially when considering factors like current lease length, ground rent, and the uncertainty surrounding the new legislation.
The government’s promise of a Leasehold Reform Bill in the King’s Speech adds another layer to this complex scenario. While the bill is likely to be introduced, its passage into law remains uncertain, and the possibility of a general election before its approval could further complicate matters.
What Lies Ahead: Pioneering or Treading Cautiously?
As leaseholders grapple with the decision to extend under existing legislation or await potential reforms, one question arises: to be a pioneer or tread cautiously? The current legislation is well-established, with decades of legal precedent, while new reforms introduce uncertainties that may take years to resolve.
In the ever-evolving landscape of leasehold reforms, leaseholders must weigh the potential benefits against the risks of embracing new legislation. As the saying goes, hindsight is 20/20, and navigating this intricate journey requires careful consideration and a deep understanding of the evolving leasehold landscape.