Leasehold reform should make system simpler and cheaper

Homeowners living in leasehold properties in England and Wales could save thousands thanks to leasehold reform proposals.

The Law Commission wants to make it easier and cheaper for leasehold homeowners to extend their lease or buy the freehold.

In England alone, there are around four million leasehold homes. This means the homeowner only owns the property but not the land it sits on. And they must lease that land from the landowner or freeholder.

The Law Commission has been reviewing the law around leasehold for the last two years. The issue gained traction when builders and developers were revealed to be selling new-build homes as leasehold with expensive ground rents attached.

The watchdog ran a consultation last year on leasehold reform. Earlier this month, it published the first part of its review, on enfranchisement (extending the lease or buying the freehold).

Among the commission's proposals for improving enfranchisement is to cap the ground rents on leasehold properties.

Ground rent is payable annually to the freeholder, but new-build homeowners have discovered that clauses in the lease allows the freeholder to impose onerous rises every year. In some cases, the rises are so steep that the property becomes unsellable.

Enfranchisement can be an expensive business. Leases usually run for long periods of time, often 125 years and sometimes as long as 999 years. However, once the lease period drops below 80 years, extending or buying out the freehold becomes much more expensive.

At this point, a leasehold property with less than 80 years left on the lease becomes almost impossible to mortgage.

The Law Commission says its leasehold reform proposals offer a better deal for leaseholders by "making enfranchisement easier, quicker and more cost effective".

The body also says its plans would reform the existing rights of leaseholders. Meanwhile, the changes would simplify and reduce the legal costs for enfranchisement.

Nicholas Hopkins is the property law commissioner.

He said: "We were asked to provide options for reforms that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords. This is what we've done."

In June 2019, the Government announced a ban on the sale new-build homes as leasehold except in exceptional circumstances.

Meanwhile, Robert Jenrick, the current Housing Minister, is to consider the Law Commission's proposals before deciding which route the new Government will take.