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21

Jul 2020

Leasehold reform proposals and what they mean for leaseholders and freeholders

  1. What are the proposed changes for lease extensions?

Currently, leaseholders who have owned a flat for two years have a right to extend their lease by adding 90 years to its remaining length and reducing their ground rent down to zero. They need to pay a premium to do that.

The changes proposed in the Law Commission recommendations published on 21st July 2020 recommend that the government implement several new types of lease extension claim for leaseholders, being:

  • A claim for a lease extension of 990 years on top of the existing lease length and buying out the ground rent
  • A claim to buy out the ground rent without extending the lease
  • A claim to extend the lease without buying out the ground rent

A further proposed benefit to leaseholders is that the current requirement to pay your freeholder’s legal and valuation fees for the lease extension process may be reduced or removed.

       2. Will these changes actually happen and when?

The current estimate is that there will be a six-month response period and then the proposals would be put forward to be considered for legislative changes. As such, there is currently no guarantee that these proposals will come into effect at all, or when that would occur. They may be put into effect later, or with substantial changes from these recommendations.

      3.   Should I undertake my lease extension now or wait?

There is no guarantee changes will come into effect, or what form they will take, so if you are getting towards having 80 years left on your lease, our advice is to protect your position and do your lease extension based on the current rules. There is also no firm statement about whether the cost of the new, longer lease extensions would be priced differently from the current 90-year ones. 90 years is enough in most cases, so if the current 90-year lease extension would be sufficient for you, you may wish to proceed regardless.

If your lease has many years left on it, you may not need to act now to protect your position, and in those circumstances, it might be prudent to see if the new changes will benefit you. In particular, it may save you from having to pay some or all of your landlord’s fees. That being said, if the changes that emerge do not make your lease extension more beneficial or cheaper, the time you spend waiting now may result in the price of your extension rising as your lease run down. It would only be advisable to wait if you would significantly benefit from a lease of 990 years rather than a lease of 90, or if you are under no time pressure to extend and have a considerable number of years left on your lease.

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