On 26 November 2024, the Government issued the latest update in the long running saga of leasehold reforms in England and Wales.
Ricky Coleman, leasehold solicitor at Peppercorn law notes that "back in January 2021, the Government announced ambitious leasehold reform proposals, with the result that leasehold clients were withdrawing from lease extensions and collective enfranchisements at high personal cost, in the hope that cheaper lease extensions and freeholder were on the way. Here we are four years later and other than a ban on new ground rents, nothing has changed.
Meanwhile, tens of thousands of leaseholders have been forced to extend the lease knowing it will cost less once the leasehold reforms kick-in, due to wanting to move home or having to re-mortgage or sell a flat with a short lease."
We await further news on when marriage value will be abolished in the lease extension new laws, and when freeholders legal costs will no longer be payable by the leaseholder serving the s.42 notice.
Where can I find out the latest with the lease extension new laws?
The Government keeps tabs on the latest movements regarding leasehold reform on their website here
Lease extension new laws in 2025
The announcement in November 2024 did provide some certainty on one of the major changes to section 42 notices, which is that a leaseholder will no longer have to have been the owner of the flat for 2 years to qualify for a lease extension. This is a positive development, as it means that a leasehold flat can be sold without having to extend the lease first.
The buyer can now serve a s.42 notice as soon as they are the legal owners, without waiting two years. This is useful because:
The buyer, who will ultimately be paying the premium and landlords costs, will control negotiations
The new lease premium wont increase as the property rises in value and as the lease term reduces, whilst the new owner waits two years to accrue the right to extend the lease.
When will it be cheaper to extend the lease?
There are some huge changes on the way that will benefit leaseholders. The frustration has however been the pace of the changes, we have the Leasehold and Freehold Reform Act 2024 which sets out changes to the law, but nearly all of them need secondary legislation, and we simply do not know when the Government will prioritise this.
We do know however that the following changes will be brought in:
To remove freeholders legal and valuation costs from the sums payable by the leaseholder
To cap ground rents when assessing the premium payable to extend the lease
Abolishing marriage value
If you have a lease with less than 80 years remaining of the lease term, this is the big one. Marriage value forms the majority of the sum payable to the freeholder
For example, in a lease extension that Peppercorn Law was recently involved with in Brighton, the lease had 56 years remaining, with a premium of £26,700 payable to extend the lease, and of that £14,725 represented marriage value. You do not need to be a maths expert to see the huge benefits to abolishing marriage value and hence many leaseholders have been waiting on these changes before serving a section 42 notice.
Removing freeholders legal and valuation costs
This is a another huge change that will benefit leaseholders. The current system allows a freeholder to engage solicitors without worrying about footing the bill, and those very same solicitors then argue in favour or higher premiums or onerous new lease clauses - all things the leaseholder (and bill payer) do not want.
There cannot be any other system like this in the legal world, where one party pays both parties costs, even though it is the freeholder obtaining a windfall. We feel that there will be a behavioural shift from freeholders once they are required to pay their own legal costs, perhaps this will spell the end of unnecessary delays, as ultimately it will push up the freeholders legal bill.
Capping ground rents
The Leasehold and Freehold Reform Act 2024 sets out that whilst ground rents continue to be payable on an annual basis i.e. they were not capped by the Act, they will be capped when a valuation is carried out to extend the lease.
In the case of a ground rent that is higher than 0.1% of the property value, the ground rent will be deemed to be fixed at a maximum of 0.1%, which will result in a lower premium than is currently the case under the Leasehold Reform, Housing and Urban Development Act 1993.
Could lease extensions become more expensive?
This is something that we have seen commentary on however it is Peppercorn Law's view that it is unlikely. Given that the Law Commission was tasked with suggesting changes to leasehold law that would benefit leaseholders, it would seem unlikely for say marriage value to be abolished and ground rents capped but for this to be offset by a change to the deferment rate, for example.
I have less than 80 years on my lease, should I wait for the leasehold reforms?
The answer to this question depend on a number of factors. At the moment there is a known price to extend the lease, there could be a benefit of a lower premium but it depends on whether you need to sell or remortgage or can wait for a few years.
It also depends on whether you are happy to accept the risk stated by some leasehold valuers, that you could end up paying more (though we think it unlikely).
One thing we have seen is leaseholders holding on for the reforms, only to be let down by the latest government announcement with little substance, and reluctantly proceeding at a higher premium than would have been the case a year or two ago, as the lease has shortened and property prices have increased.
This is clearly a difficult decision and we hope to provide more clarity once the consultation on lease extension valuations commences in the summer of 2025.
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