Better Business
Welcome but slow progress in the leasehold waiting game – Cavendish Legal Group
Guest Author:
Jonathan Frankel, managing director of private client and leasehold enfranchisement at Cavendish Legal Group - part of the ONP Group.Back in 2017, the government asked the Law Commission to recommend improvements to the leasehold and commonhold systems.
This resulted in the publication of a blueprint for the future of home ownership in July 2020, which contained recommendations on leasehold enfranchisement, the right to manage, and commonhold ownership as an alternative to residential leasehold.
Now the first law resulting from those recommendations has been enacted with Royal Assent being given to the Leasehold Reform (Ground Rent) Bill, which will restrict ground rents on newly created long leases to a ‘peppercorn’ amount, which means token or nil.
While this progress is welcome, the fact is that it has been slow progress. Furthermore, it looks as if a similarly glacial speed of legislative progress will continue for the second part of the reforms the government has pledged to make to support leaseholders.
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Further support needed
At the beginning of the year, the government launched an open consultation on reforms to the current leasehold and commonhold system.
It is seeking to address a number of issues affecting leaseholders, notably the fact that the law currently excludes premises from enfranchisement if the non-residential part of the building exceeds 25 per cent of the total internal floor area.
It is proposing that future leaseholders would only be excluded from enfranchisement if the non-residential parts of the building exceed 50 per cent of the total internal floor space of the premises.
Furthermore, the introduction of compulsory leasebacks would be likely to make enfranchisement cheaper given that they can force the existing freehold to take a leaseback of certain units.
These proposed reforms are all good news for existing leaseholders with problems such as a short leasehold or a rising ground rent. The bad news for these leaseholders is that there is no immediate end in sight to the leasehold waiting game.
Slow resolution
Although legislative changes are certainly on the way, it could take years rather than months judging by the time taken for the Leasehold Reform (Ground Rent) Bill to be entered into the statute book.
It means leaseholders unable to wait will have to decide whether to take a gamble and hold fire to see if and when the government brings in further reforms, or whether to take control of their situation by utilising existing statutory solutions to address leasehold or ground rent issues that is making their property unsaleable or unmortgageable.
Enfranchisement options could include buying out the freehold entirely, or extending their lease by either an additional 90 years for a flat or 50 years for a house.
With statutory transactions typically taking between three and six months, this could be a solution for leaseholders who want to move on with their lives instead of waiting for the second part of the Leasehold Reform Bill.
Any decision would be very much a personal one, as everyone’s personal circumstances are different, for example whether they have a leasehold property that they own, rent out, have inherited, or are intending to sell in the next few years.