Government's leasehold reform proposals come under the spotlight

The complexities of the government’s leasehold reform proposals affecting millions of homeowners came under the spotlight at a seminar organised by Coventry and Warwickshire’s law firm Brindley Twist Tafft & James and property experts ehB Residential Surveys.

Forty invited guests – including estate agents, surveyors, private finance advisors and conveyancing lawyers were among those who attended the event at the Warwick Arms Hotel.

The event follows Michael Gove’s plans to shake up England and Wales’s ‘feudal’ leasehold system were announced in the King’s speech in November.

Gove said the proposed Leasehold Reform Act would overhaul the system and prevent developers from selling new houses under leasehold, ensuring a fairer deal for leaseholders.

Multiple ground rents

It would also make it easier and cheaper for leaseholders to extend their lease agreement or buy their freehold, giving them more control of the land on which their property is built.

Alex Khan, Partner and Property Solicitor at BTTJ said the problems within the current system are compounded by issues such as multiple ground rents – the charge for renting the land from the freeholder – diminishing lease terms, excessive insurance commissions and overcharging of service charges.

Under the current legislation the standard lease extension term is currently 90 years. The proposed new legislation will increase this to 990 years – saving leaseholders the headache of a long, complicated and expensive process of extending leases which can cost thousands of pounds.

The reforms also aim to ensure service charges and ground rents are transparent and reasonable.

The Conservatives have also promised greater transparency of the system, the banning of excessive insurance commissions and an end to the requirement for a new leaseholder to have owned their property for two years before being able to extend the lease or buy the freehold, resulting in a rising premium.

They have pledged to remove the ‘marriage value’ cap meaning leaseholders with less than 80 years left on the lease will no longer have to share the hypothetical profit of the property with the freeholder, meaning they could potentially benefit by thousands of pounds.

Alex Khan said the government is also proposing to allow leaseholders of mixed use properties with up to 50 per cent of non-residential floor space to buy the freehold and manage the building, a move which Mr Khan said would allow residential tenants who live above a business, but have no experience in commercial property, to manage their entire building.

Freeze at current value

“Often referred to as ‘fleecehold’, leasehold is a diminishing asset.  It was first brought about by barons who would finance their crusades abroad by leasing their land to tenants for a peppercorn rent on the basis they knew the land would always be theirs. The system itself actually does work but in the last 20 years it has been abused, so what used to be an £8 ground rent is now £300, £500, going all the way up to £10,000 for the lifespan of a lease, and it prevents people from selling a property so the system has spiralled into an abyss.”

Jonathan Selby explored a number of options which may be implemented by the government, including abolishing the marriage value or introducing a ground rent cap either at 0.1 per cent of the property value, or at £250.  Other option included re-setting the ground rent to the initial ground rent set out in the lease or freeze it at the current value.

He said: “Mr Gove says he will have all of this in place before the general election scheduled for later this year, but realistically I think we could still be talking about this in four or five years’ time. The legislation that may go through may be so watered down that it barely affects anyone at all.”

Conversely labour says it would scrap the leasehold system altogether if it wins the general election.