Radical changes are in the pipeline concerning leasehold properties, which will have an impact on developers, investors and landlords.
One year after the government issued the consultation paper ‘Tackling Unfair Practices In The Leasehold Market’, it has now issued some proposals to deal with perceived abuses of power. This will change the way residential properties, such as new-builds, can be sold, but it is not clear how it will affect people who already own leasehold properties or leases which have harsh stipulations regarding ground rent. Under proposed legislation which has yet to go through Parliament, new long leases on houses will no longer be allowed. This will apply to existing houses and new-builds, however, there are likely to be exceptions to the rule. Legislation will also set peppercorn ground rents for all new leases longer than 21 years. It will also improve leaseholders rights to buy the freehold to the property or to extend their lease on more agreeable terms.
Another interesting area that the new legislation will cover concerns assured tenancies. At the moment, legislation exists whereby a lease is classed as an assured tenancy if the ground rent is more than £250 per year in the UK and £1,000 a year in London. At the moment, the leaseholder is classed as an assured tenant which means the lease can, theoretically, be terminated if there are any rent arrears, however small. The landlord can apply for a mandatory possession order to cover these debts. The government intends to close this loophole to make sure leasehold owners are not unfairly subjected to possession orders.
Other reforms include making it simpler for leasehold owners to purchase the freehold or extend the lease, bringing in a minimum term for any new long flat leases, reforming covenants regarding freehold schemes, and encouraging common hold tenure as an alternative to freehold and leasehold.
The proposed changes coincide with an appeal court ruling which could lead to the cost of lease extensions being halved. It could also mean that the 2.1 million households living in leasehold properties in England and Wales could find it much cheaper to buy their freeholds. Often, property owners neglect to factor in the cost of the ground rent when they buy the property. They may decide to buy the freehold instead, but there can be archaic methods to calculating how much it is worth. The court of appeal is due to rule in a long-running legal battle between Mundy and the Sloane Stanley Estate. If the decision goes in favour of the leaseholders, then freeholders could see the value of their assets drop, while freeholds can be obtained for about one-third less than at present. The case in question involves a flat in Chelsea with a lease of less than 23 years. The freeholder wants £420,000 to extend the lease. This is what is being challenged and could lead to leasehold reform, if successful. If the case finds in favour of the leaseholder, it is expected it will go further to the Supreme Court to appeal against it. So it could be some time before this is resolved.