Are Leaseholders Extending? Or just waiting for Leasehold Reform?

Are Leaseholders Extending? Or just waiting for Leasehold Reform?

Own freehold ground rents? As you will know leaseholders current face one the most common crossroads, whether you should extend your lease or not. As a landlord you will realise owning freehold properties can be complicated and time consuming. With leasehold reform set to make lease extensions quicker, easier and cheaper – is it still worth owning a freehold?

Leaseholders are looking to save money when extending their leases by waiting for the law commissions new leasehold reform.
Many leaseholders are holding out, hoping for a quicker, easier and cheaper lease extension under leasehold reform.

With a leasehold property leaseholders’ have two options. Extend the lease, or buy the freehold, whether it’s a house or a flat in a block, flat owners can collectively purchase. Both processes currently take time, are rather expensive and require specialists to navigate. Recently the Law Commission has been looking to find ways to make it easier and cheaper for leaseholders.

When it comes to leases, they usually range in length from 99 to 125 years from the time the property was constructed. What we expect to happen is for leaseholders to finish the term and give back the property to the freeholder, though this doesn’t happen most of the time.

How is a lease extension currently valued?

Lease extensions are a complicated process and typically require a RICS qualified surveyor to complete.

As it stands, using the 1993 Leasehold Reform Act, a leaseholder (someone who owns a property with a lease) who has lived for a minimum of two years in the property can choose to extend their lease, usually by 90 years, reducing the ground rent to a peppercorn by serving a statutory notice. Deciding to extend your lease is not easy as it can take a lot of time and money to do so.

One of the things that complicate the whole process is calculating of the premium paid to extend a lease. Both parties negotiate with figures that are derived from a sophisticated formula, considering:

  • Years left on the lease
  • Property location
  • Ground rent, how often it increases and by how much
  • Value of your flat with your present lease length and with an extended one (marriage value)

As it currently stands, the longer leaseholders wait to extend their home’s lease, the costlier it becomes.

However, the government are planning leasehold reform that could drastically change everything – a positive for leaseholders, a negative for ground rent investors.

For leaseholders this presents a predicament, extend their lease now at what seems to be the current higher price or wait for the leasehold consultation to be implemented, and potentially extend at a lower cost. Those who need to sell their property and have a short lease are likely to need to extend now, though remaining leaseholders are unlikely to extend – as they can simply wait.

Leasehold reform’s cost saving suggestions:

Reducing lease extension costs for leaseholders, at the freeholders expense.
  • Reduce lease extension costs to 10x ground rent
  • Reduce all new ground rents to a nominal amount, ie a peppercorn or £10pa.
  • Reduce all existing ground rents to £250, regardless of lease terms
  • Each party be responsible for their legal costs when a lease is extended (rather than the leaseholder paying both)
  • Remove marriage value from a lease extension valuation
  • Ability for leaseholders to join enfranchisement, after the original purchase
  • New lease extensions of 125 – 250 years

Currently a solicitor is required by both sides alongside third-party consultants, such as surveyors, which all costs are paid by the leaseholder. The proposed eradicates this cost, making freehold ownership most costly and less rewarding.

Time to sell your ground rents?

If you are looking to sell your freehold, rather than face leasehold reform uncertainty, call Sell My Ground Rents on 0207 305 5825 for advice and a free freehold valuation. Or get in touch online by clicking here to enter your details.

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