New measures will make it cheaper and easier to extend your lease
If you own a leasehold property in England, you’ll soon have the right to extend your lease by up to 990 years, with no ground rent – potentially saving you thousands of pounds.
Housing secretary Robert Jenrick has announced changes to the leasehold system that will come as a relief to 4.5 million leasehold homeowners.
What is leasehold?
Property can be owned on either a leasehold or freehold basis. Freehold ownership indicates total ownership of a building and the land it stands on. Leasehold ownership indicates only the right to live in that property for the period of the lease, while the building and land remain under the ownership of the freeholder. When that lease expires, it must be extended.
Leasehold properties are usually flats, where one freeholder owns the entire building and several leaseholders own the right to live in a specific unit.
Why is the leasehold system changing?
Leasehold laws have typically favoured the freeholder, who has been allowed to charge excessive and escalating ground rent and restrict lease extensions to as little as 50 years, at a significant cost (typically at least £5,000, and often tens of thousands of pounds, plus legal fees).
This can cause problems for leasehold owners who want to remortgage or sell their property, since lenders will usually only offer a mortgage on a property with at least 80 years remaining on the lease.
What is changing?
According to the housing secretary’s announcement, the leasehold system is to be overhauled and simplified. At the core of the new system is the leaseholder’s right to extend their lease by 990 years, with no ground rent to pay on the new lease.
The cost of the lease extension will be decided by the government, rather than through negotiations between the leaseholder and freeholder. There will be a formula for determining the cost, the details of which have not yet been announced, although the housing secretary indicated that it will be lower than leaseholders are currently paying.
The government is also establishing a Commonhold Council to lead a transition away from leasehold ownership and towards commonhold ownership. Commonhold ownership allows blocks of flats to be owned and managed jointly on a freehold basis.
Who will benefit?
If you own a flat, it’s very likely that you’re a leasehold owner. To benefit from these changes, you will need to extend your lease, although you’ll have to wait to do so as it may take months or years for the new system to be implemented.
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