What are new leasehold reforms and how will they impact homebuyers? Stephen Ward has the lowdown
You may have seen leasehold reform in the headlines recently.
It’s been a long time coming, but there has finally been some movement from ministers on plans to end the outdated system that has seen people locked into paying spiralling ground rents and service charges.
The Leasehold and Freehold Reform Act 2024, which received royal assent last May, has been cautiously welcomed as good news for homebuyers, but it is being implemented in stages and progress is slow.
With an estimated five million leasehold properties in the UK – mostly flats – it’s important to understand what it means and whether it’s worth delaying your move.
If you’re looking to buy in the near future, here’s everything you need to know.
What does leasehold mean?
If a property is freehold, you own both the building and the land. Leasehold means you own the building but lease the land for a fixed period.
As the lease term gets shorter, this can affect the value of the property. Leases are typically 99 years or more but depending on how long is left when you buy, you may have to pay to extend it.
Owners of leasehold properties are also usually charged ground rent, payable to the freeholder and subject to change, although leases granted after June 30, 2022, must be capped at a ‘peppercorn’ amount.
In the case of leasehold flats, whilst you own the flat, the freeholder will usually be responsible for insuring and maintaining the building – including any communal areas – and you will be asked to pay a service charge to cover your share of these costs. This can vary depending on what needs to be done, and, in addition, you may be asked to contribute to a reserve or sinking fund to cover any major works.
What’s changed?
The Leasehold and Freehold Reform Act will purportedly make it easier and cheaper for leaseholders to buy their freehold, increase the standard term for leases to 990 years and provide greater transparency around service charges.
Unfortunately, the majority cannot be implemented without further, secondary legislation, consultation on which is expected to take place later this year.
One change that has taken effect is where previously leaseholders had to wait two years from buying a property before they could apply to extend the lease, or buy the freehold, this condition has now been removed.
Separately, the government has also pledged to create a Leasehold and Commonhold Reform Bill which would, among other things, ban new leasehold flats and regulate ground rents, moving the UK towards a commonhold model where people who own flats in a building have joint ownership and responsibility for shared areas and services. The proposed bill has not yet been drafted, however, and as such is unlikely to be implemented any time soon.
What does it mean for me?
In reality, little has changed for homeowners buying leasehold properties now, so it is still imperative that you understand the terms of the lease and what you’re signing up for. Ask your conveyancer to explain and advise before you make a decision.
In particular, you should consider how long is left on the lease and how much it will cost to extend it, plus how much the ground rent and service charges are. Estate agents are required to provide this information when they are marketing properties.
Whilst some ground rents are nominal, there have been cases where people have found themselves paying thousands of pounds because the lease stipulated that it should say, double, every five years.
The lease should stipulate how much the service charge is which, although it may vary, should still be reasonable.
It should also detail any other restrictions or obligations under the terms of the lease, such as that you cannot run a business from the property, keep a pet or make any structural alterations.
Your conveyancer may be able to negotiate more favourable terms and challenge any charges deemed unreasonable as, in addition to the cost, it is important to consider how the above may affect the future saleability of the property.
When researching conveyancers, it’s a good idea to ask what experience they have with leasehold properties. Choosing a regulated conveyancer will also afford you protection in the unfortunate event that anything does go wrong.
Visit our website for more advice on choosing a conveyancer and for a list of CLC-regulated practitioners here.
Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers
