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New Leasehold and Freehold Reform Bill and what it potentially means for you

The Leasehold and Freehold Reform Bill, announced in the King's Speech, has now been published. Its contents are significant for leaseholders of flats and houses, if it does indeed become law.

The highlights are:

 

1. Marriage Value Elimination: Leaseholders with less than 80 years remaining on their leases will potentially see substantial savings through the saving of marriage value. However see below for set rates for Enfranchisement Premiums which could be a hidden balancing act.

 

2. Set Rates for Enfranchisement Premiums: The introduction of fixed rates for calculating premiums in enfranchisement cases could benefit leaseholders, depending on the rates (which the Government would prescribe). One fundamental input to the calculation is known as the “Deferment Rate”. This is currently 5% for flats 4.75% for houses, prescribed by case law. These rates have an inverse effect on premiums so if they are reduced the premiums will jump up. One concern is that the this could be used as a re-balancing exercise by the Government given the abolishment of marriage value. Equally though, if the Government raise the Deferment Rate then the premiums would become even cheaper still.

 

3. Removal of Two-Year Ownership Requirement: The requirement for owning a property for two years before applying for a statutory lease extension will be removed, simplifying the process for flat buyers and sellers involving a short lease.

 

4. Extended Lease Terms: The term for extended leases will increase to 990 years from 90 years, eliminating the need for multiple extensions.

 

5. Ground Rent Cap in Premium Calculation: Ground rents exceeding 0.1% of the property’s freehold value will be excluded from the premium calculation, making it more affordable for leaseholders to buy out high ground rents.

 

6. Right to Buy Out Ground Rent: Leaseholders with long leases will be able to buy out their ground rent without extending their lease term.

 

7. Inclusion of Mixed-Use Buildings: Buildings with up to 50% non-residential use will now be eligible for a collective freehold purchase or to take over their management rights, a change from previous exemption of 25%. This will mean that more Buildings will qualify and allow leaseholders to take control.

 

8. Easier Collective Freehold Claims with non Participators: Flat owners will find it easier to fund non-participating neighbors’ share of the premium in collective freehold claims, with the option to have the freeholder take a leaseback of non-participating units. This will take out the value of the flats from the premium payable therefore making the global amount payable cheaper and more affordable.

 

9. Landlord’s Costs: Landlords can generally no longer charge leaseholders for costs in enfranchisement and right to manage claims.

 

All in all, this is a significant improvement on the current regime. It is now up to Parliament to implement all or some of the above.

 

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About the Author
James Compton, Partner, Head of Enfranchisement

Specialises in: Real Estate Projects, Leasehold Property, Property Management, Company Commercial, Social Housing and Local Authority 

If you are looking for help and advice, or would like to talk to someone at Comptons, please contact James Compton in the Leasehold Property department at Comptons Solicitors LLP. (jc@comptons.co.uk / 020 7482 9513).