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We set out below some comments and observations on the current proposals in order to put them into context and which we hope will be useful. Please note the announcement, read more on the government website, follows several proposals recommend by the Law Commission in January 2020. The announcement notes:
‘Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in this Parliament. We will bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.’
We set out some extracts and comment on them (in bold). Please note that they are selective extracts, and you must read the full text of the piece and the Law Commission’s proposals on their website.
Today’s changes mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.
This is very welcome since it makes sense to move from the current 90 years for a flat lease. Note that in valuation terms the premium for extending a lease by 90 years or by 990 years is not significant as your valuer can explain.
A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
We shall have to see what the ‘cap’ is set at and your valuer will adjust the calculation of the premium accordingly.
The government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent.
Marriage value assumes that the value of one party holding both the leasehold and freehold interest is greater than when those interests are held by separate parties. Today’s announcement will remove marriage value from the premium calculation.
At present marriage value applies to lease terms of less than 80 years. This seems to suggest that to reduce the premium calculation for those leases – but see below. There is nothing to suggest the premium for leases above 80 year lease terms will change.
Many long leases specify an annual ground rent of a ‘peppercorn.’ A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. Under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn rent. Today’s announcement means that both house and flat leaseholders will now be able to extend their lease to 990 years with a ground rent at zero.
This is misleading in relation to flats in that for a lease extension with a peppercorn rent, in effect is zero rent. However, the term of 990 years is certainly preferable to a 90 year extension.
A. The answer for those with lease terms of less than 80 years may be ‘yes’, save that at this point we have no information as to the valuation basis once marriage value is removed. That means there can be no guarantee at this time that you may pay less than under the current regime. We simply cannot say.
A. You can do this, but you need to consider the comments above as to the premium you may pay. In general, the shorter the lease term the higher the premium. In addition, you will be required to pay costs to the other side and a proportion of our costs should you withdraw. It is critical to note that if you do withdraw you cannot make a further claim within a year of the date of withdrawal. That may change but that is the current law.
A. On the face of it, your rights remain as they are, and we are not clear what changes are to be made that will influence (if at all) the calculation of the premium payable to buy the freehold
A. It is hard to know if there are likely to be any saving to be made going forward and you will likely face costs for the other side and part of our own costs
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.