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Leasehold Reform – Further Thoughts

25/01/2021

At a glance

Following on from our recent leasehold reform update article, we have had further thoughts about the potential impact on the housing market of the proposed reforms and the potential for this legislation to benefit home owners even more.

There are currently three areas that we consider should be priorities:

  1. Ground Rent
  2. Cladding
  3. Impacts on enfranchisement of the new proposed leasehold reforms

1. Ground Rent

In our experience, sales are being delayed because the ground rent is above specified levels (£250 outside London and £1,000 in London) and the leases are deemed to be assured tenancies. Most mortgagees will refuse to lend as the leases could be forfeited if rent is not paid.

It would be very simple for the Government to legislate on this by raising the rent levels before a tenancy becomes an assured tenancy. It is disappointing that this was not referred to in the Government’s recent announcement.

2. Cladding

There is not enough space here to recite in full the impact on the UK market of the Grenfell disaster. We are of the view that this is an area that the Government needs to  take urgent action on, not just because of the human impact on people being unable to sell such properties until rectification works have been carried out and in many cases unable to afford the cost of the works, but also because people remain in properties that are potentially unsafe.

The current situation is partly a result of decades of regulatory failure and inadequate building regulations and the government needs to now issue new clear guidance on how homeowners can find out whether their properties are affected and what steps they must take to make their properties safe.

3. Leasehold Enfranchisement

Whilst it is in tenants’ interest for the legislation to be changed so that the leasehold enfranchisement procedure is simplified and that premiums are reduced, we do not have the details of the proposed legislation and a timescale.

Tenants with properties where the lease term is under 80 years who wish to extend their leases are left in a difficult position because on the one hand if the government follows through with its indication that it will abolish marriage value, it may be best to wait until the reforms come into force as the premiums are likely to be lower as a consequence of the reforms, but on the other hand, while the current system is still in place, the premiums for leases with less than 80 years remaining on the term will continue to increase as time goes on.

Tenants will need to make a commercial decision as to whether they wish to proceed with any proposed lease extensions now in order to facilitate a property sale or finance for example, or whether they are prepared to wait to see what the reforms will eventually bring, even if they are several years away from coming into force.

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Nicola Kravitz
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    Fayruz Cahill
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