The Law commission has issued its report into leasehold reform. The Government asked the commission to determine alternative ways to address unfair and abusive practices in the leasehold system and to review enfranchisement law to make the residential leasehold sector more transparent and fairer.
In recent years, leaseholds have come into the spotlight due to the increasing numbers of properties sold with ground rent clauses that escalate or double over a certain period. Escalating ground rents can impact a leaseholders' ability to re-mortgage or sell their property, leaving many leaseholders in a “leasehold trap”. Problems additionally exist where the remaining lease duration falls below 80 years and the concept of “marriage value” is included in the enfranchisement cost. Also, the tendency of developers to sell houses as leaseholds over recent years has increased the number of people facing excessive costs to extend their leases. With these issues in mind, the objective of the review was to reduce premiums payable by leaseholders to enfranchise their homes, while ensuring landlords are sufficiently compensated.
The commission’s report presents three alternatives to calculate the cost of enfranchisement. Each alternative has a number of “sub alternatives” all of which are based on a different assumption about how the landlord's interest is valued. The various options presented addresses the fundamental valuation concepts of the term of the lease, the reversionary value, the marriage value and hope value.
Commenting on the report, the housing secretary, Robert Jenrick, said he will consider the proposals and set out the government’s response. “We have already committed to addressing the abuses of leasehold seen in recent years, by reducing ground rents to a peppercorn level and limiting new leasehold to apartments, save in the most exceptional circumstances. The Competition and Markets Authority is examining the alleged mis-selling of leasehold properties and I will also await their findings with interest.”
The concept of introducing an online calculator was also suggested in the report with the purpose of providing leaseholders with certainty and transparency in terms of the costs involved in enfranchisement.
It is now down to the Government to consider the proposals, however no timescale has been published as to when this might take place.
The commission will make further recommendations this year on reforms to improve what it calls a 'complex' enfranchisement system. Reports on reforms to make commonhold a viable alternative to leasehold and improving the law to give leaseholders management rights will also be published.
For further information on the report, see here:
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For further information on reform of leasehold ground rent, please see here
Also, for more information on extending a lease please see:
To understand the terms commonly used in leasehold ownership and conveyancing, please see here :