Leasehold reform is coming...
Amongst all the recent news about the property market, it has gone somehow unnoticed that the government is finally changing the medieval system of leasehold.
This feudal system of homeownership, which is very peculiar to the UK, dates back 1000 years and simply grants the buyer of a property that is a leasehold (mostly flats) the right to live in a property for 99 to 9999 years. Every year the lease goes down and the property eventually becomes less valuable.
Until now, if you buy a property with a lease that is shorter than 80ys old, you needed to enter into costly legal fees & other charges while negotiating a sum with the freeholder.
The reforms announced by the government will arrive in 2 parts:
- Ground Rents for future new build homes will be abolished and all of them will have a 990 years lease.
- Commonhold will gradually be adopted. Commonhold is the way people own property in most of the world, where residents jointly own and manage common parts in the building together.
What does it mean to you?
These changes will make it easier and cheaper to extend a lease. Calculation rates will be reset and marriage value will be banned. There will be a calculator that will tell you how much an extension will cost and how much it will be for a freehold. Very similar to what already exists to calculate the Stamp Duty.
Under the new terms, leaseholders of houses and flats will be able to extend the lease for 990 years, so they will never have to go back to the freeholder. Ground Rents will be set at 0.
These changes will not become law for another 2 years. So, if you are in the process of seeking a lease extension, check with your solicitor, it may be worth waiting for that extension. If you are selling a property with a short lease, it’s a conversation you may need to have with the purchaser.
Is it worth it to buy the freehold? Again, that depends. It comes down to whether you want ultimate control of, and responsibility for, your building.
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