How Will Leasehold Be Scrapped?

Leasehold Be Scrapped

The leasehold system has long been criticised, with many homeowners having faced hefty bills and being unable to sell their flats after they’d bought it through the leasehold system. This is why levelling up secretary Michael Gove has pledged that laws to scrap the leasehold system will be tabled this year and, if passed, could see millions of people buying their homes outright instead of paying huge ground rents and management fees.

There are two main elements to the Leasehold Service Startup system – a freehold and a lease. The lease gives the right to live in a property for a set period of time, known as a ‘term’. The term can vary from decade to century, depending on the lease length and whether it is for a house or flat.

If a leaseholder wishes to extend their lease, they will need to pay a premium to the freeholder in order to do so. This is called a ground rent and can be very high, sometimes doubling on a regular basis.

How Will Leasehold Be Scrapped?

Government has recently announced it will be abolishing ground rents on new leases from 30 June 2022, and it will also ban ground rents on all informal lease extensions. These changes are expected to take effect as part of a wider package of reforms that will level up home ownership and make housing more affordable for the next generation.

It is important to note that these changes will not be available to all leaseholders. They will apply only to ‘Regulated Leases’ which are those leases that were granted on or after the ‘commencement date’ (the date of legislation being passed by Parliament), and leases that have been surrendered and re-granted after this date.

This is the first stage of a two-part reform process that is due to be completed by 2024. The second phase will see marriage value removed, as well as a simplification of the fees.

The marriage value issue is a particular concern for people who hold leases that are less than 80 years old, as they will find the cost of extending their lease becomes much more expensive if it is extended after this period. It is estimated that a typical homeowner who extends their lease after they have reached the age of 80 years can save thousands of pounds by not having to pay the marriage value.

However, a new leaseholder must have been living in their property for at least the previous 80 years to be able to benefit from this change, so it will be up to them to check that they are eligible and then ensure they are notified of the changes.

Another change that could help homeowners is the government’s plans to remove the “marriage value” which forms part of the calculation when a leaseholder decides to extend their lease. This value is estimated at 50% of the increase in market value resulting from the extension.