Read our response to Coronavirus (Covid-19) and what we’re doing to support your conveyancing journey. Find out more.
Reforming the leasehold system is essential to make it easier and cheaper for homeowners to buy the freehold on their property or extend their lease.
However, the Law Commission insists that any changes to the system of property tenure in England and Wales must be fair to both leaseholders and freeholders.
Around four million properties are leasehold, meaning the homeowners do not own the land on which their property stands.
Instead the land is leased from the freeholder or landowner for a specific period of time, usually decades or hundreds of years.
The issue of expense arises when the length of time the lease has left to run falls below 80 years. At this point lenders are unlikely to offer a mortgage on the property.
And the freeholder, to whom ownership of the property reverts when the lease runs out, can demand a higher premium to extend the lease or sell the land.
Many leasehold properties, particularly in London, are former local authority homes sold under Right to Buy. The freeholder in those cases is the local authority.
Campaigners have been demanding leasehold reform for years. In 2018, the Government asked the Law Commission to explore potential reforms and consult with interested parties.
In its most recent report, the Law Commission has set out three alternative options for reforming how leaseholders can extend their lease or buy the freehold.
It also suggests capping ground rents. These are paid annually to the freeholder and were pinpointed as an issue for new-build home buyers in 2018.
At the time it was revealed that developers were selling new-builds as leasehold, then selling the leaseholds on to independent management companies.
The leases included clauses that allowed for ground rents to double every year, adding a significant financial burden to homeowners and making some properties unsellable.
Professor Nick Hopkins, the property law commissioner, said: “We were asked to provide options for reform that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords.
“This is what we’ve done. We are ready to help the government in implementing whichever options for reform they choose.”
The Government is to consider the proposals before responding.
Fran is the content writer for Capital Conveyancing, producing articles on all aspects of the conveyancing process and around the UK property market in general. If there is a topic you'd like to see covered on these pages, please drop Fran a line on [email protected]