Leasehold Reforms: Is Now A Good Time To Extend Your Lease?

Leaseholders face many issues when it comes to extending their lease and freeholders charging high levels of ground rent – and although the Government is planning to introduce leasehold reforms to give leaseholders more rights and enable leaseholders to extend a lease more easily and cheaply, there is still a long way to go.

Freeholders can hold leaseholders to ransom because of the higher ground rents and costly lease extension process, making it impossible for some to sell their properties.

Government Consultation On Enfranchisement

In January 2022, the Government launched a consultation based on the proposals made by the Law Commission in July 2020, designed to increase access to enfranchisement.

The proposals’ aim is for leaseholders to be able to buy the freehold or to extend their lease more easily and fairly.

The Government has confirmed the proposals will become law via two reforms to the legislation – so far, there has only been one, the Leasehold Reform (Ground Rent) Act 2022.

Ground Rent Reforms

The Leasehold Reform (Ground Rent) Act 2022 came into effect on 30 June 2022 and abolished ground rents for newly built houses in England and Wales.

In addition, leases on new retirement properties are covered by the Act from 1 April 2023, and ground rent is abolished for informal lease extensions too.

However, while it is positive that freeholders can’t add extra ground rent to your lease during the negotiations for an informal lease extension, freeholders could still add other charges for changes to your lease during the process and leaseholders should be wary of entering into informal lease extensions.  Sometimes a statutory lease extension is the better alternative.

The Leasehold System

Housing Secretary Michael Gove said in January 2023 that he wanted to abolish the leasehold system in England and Wales due to the injustices many leaseholders face.

However, it now seems unlikely that the leasehold system will be abolished and instead it is expected that new laws will come into force at the end of 2023 to improve conditions for leaseholders. These reforms could include:

• Capping ground rent at approximately 0.1% of the property’s value
• Stopping commission being added to buildings insurance
• Giving tenants the freedom to choose their own property management company

Should I Extend My Lease Or Wait?

It’s hard to know when the new legislation will come into force, which makes it difficult for leaseholders to know if now is a good time to extend their lease or not.

Every situation is personal. For example, if you want to sell your property and only have a relatively short lease then you will probably need to extend your lease to enable potential buyers to secure a mortgage. Whereas if your lease is long, it might be worth waiting for the reforms to pass into law.

This is why we always recommend seeking professional advice before committing to a lease extension.

What’s Next For Leasehold Reforms?

The ground rent reforms legislation is a positive step from a Leaseholder’s point of view . However, the Government needs to bring in further legislation to improve the conditions for leaseholders in England and Wales such as adhering the suggestions by the Law Commission on marriage value.

The Law Commission has suggested that the Government should consider removing or reducing the leasehold marriage value, which is the increase in the property value when the leaseholder buys the Freehold or extends the lease.

We will continue to keep you updated on  developments and you can show your support for greater reforms, in the meantime, by joining the National Leasehold Campaign.

To speak to one of our professional solicitors about leasehold reforms or extending your lease, please contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com