Leaseholders could ‘save thousands of pounds’ under new government reforms
The lease extension process and costs are set to change. But when and what does it mean for leasehold home buyers and owners today.
January 14, 2021
4 minute read
The lease extension process is set to change.
Around 4.5 million leaseholders in England will be given a new right to extend their lease by 990 years at zero ground rent, under new reforms announced by the Government.
Retirement properties will be included under these changes, despite the government previously saying they would be excluded.
And the process of extending a lease is going to be simplified too. The cost to extend it will be determined by a government online calculator. This will make the process more transparent and removes the need for costly and time-consuming negotiations.
For some leaseholders, these changes could save thousands, to tens of thousands of pounds, according to the Government.
However, a full timetable detailing when these measures will be put into force has yet to be set out. The Government has only just promised to introduce legislation in the next session and we fear that it could be delayed by other legislative pressures and the intense lobbying expected by freeholders who are set to lose out.
How much could I save under new leasehold reforms?
Once these reforms have been brought in, if you extend your lease, your ground rent will be set at zero. This will come as a welcome relief to the many homeowners paying vast amounts in ground rent each year.
But the major savings will happen when you extend your lease too. Under the current system, extending your lease can be expensive and the amount you pay can be complicated. It will depend on factors like the value of the property and the number of years left on the lease. The amount you’ll pay is open to negotiation and at the moment it’s critical you get sound legal advice.
But under the new system, it should be cheaper and simpler for you to extend your lease. Previous costs such as ‘marriage value’, which is defined as the increase in property value once the lease has been extended, will be banned. And a new, standardised method of calculating the cost will lead to the creation of an online calculator. This means leaseholders will be easily able to see how much an extension to their lease will cost. It’ll also show you how much you can buy the freehold for too.
‘Good news for leaseholders – but we need to see the small print’
The news was cautiously welcomed by Paula Higgins, Chief Executive of the HomeOwners Alliance. ‘This is a step in the right direction for leaseholders and we welcome the decision to include retirement homes in these reforms,’ says Paula. ‘However we urge the Government to ensure that the online formula is simple and transparent and not stacked unfairly against the leaseholder.
‘What we need now is a clear timetable to set out when all these changes will come into effect,’ she adds. ‘We don’t want this to drag on for years, leaving leaseholders in limbo. It could mean them potentially losing out financially as they wait and wait for new rules to come in.
‘And it’s also important to recognise it’s only one step in addressing the unfair and feudal leasehold system which we want to ultimately see dismantled,’ she adds.
I’m planning to extend my lease now, should I wait?
In light of this news, many leaseholders may wish to put off extending their lease until these reforms come into force.
However, there are some circumstances in which you may still need to extend it. For example if you’re considering selling your property. Buyers won’t be able to get a mortgage if the lease term on your property is too low.
If you’re considering extending your lease, it’s essential to take good legal advice; if you have a short lease (approaching 80 years or below) it’s particularly important. Every month below 80 years can cost leaseholder a lot of money.
I’m currently buying a leasehold property, what should I do?
While the changes have yet to come into force, if you’re buying a leasehold property you may still be able to use them to your advantage. You should insist that you don’t need to pay ground rent. And also, that marriage value should be taken out of the future calculations for a lease extension, instead of waiting for the new rules to come in. Your solicitor should be able to argue that if these are due to be banned, it’s not reasonable for you to sign a lease that includes them.
Is it still worth buying the freehold?
The new changes certainly make owning a leasehold property more attractive. However, there are still benefits of owning the freehold. For example, if you’re a leaseholder you’ll still need to pay your freeholder’s costs for the maintenance of the building. And you’ll also need to seek permission from the freeholder if you want to undertake any major works on your home.
Are you a leaseholder? How do these new changes impact you? Tell us in the comments below
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