Why the future is brighter for leaseholders in 2022

With a booming property market, rising rents and low mortgage rates, landlords had plenty to be happy about in 2021. And, experts believe that 2022 could be another exciting year for the property market, in particular those in leasehold properties. One of the reasons for this is that the year ahead looks set to be a positive one for leaseholders thanks to government changes that could make it easier for them to buy the freehold to their building. 

Taking Control of Property

At the start of 2022, the Secretary of State for Levelling Up, Housing and Communities, Michael Gove announced new government plans to protect leaseholders, enabling them to take back control and ownership of their building. The government hope that thousands of future leaseholders will benefit from the reforms to the leasehold system, which are expected to come into effect later this year. 

Chartered Surveyors South East Leasehold explain that “before the Leasehold Reform Act came into force, leaseholders were at the mercy of unscrupulous landlords who took the opportunity to charge high premiums for the extension and increase the ground rent. Leaseholders watching their flats devalue had little option but to accept their landlord’s terms”. 

Mark Hayward, Chief Policy Advisor at Propertymark, goes on to state that “our research ‘Leasehold: A Life Sentence’ in 2018 found that 46 per cent of leasehold house owners were unaware of the escalating ground rent when they purchased their property. Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap”. 

Greater Security for Leasehold Property Owners

The reforms will put an end to ground rents in the case of most residential leases, but it will also enable longer lease extensions. Currently, around 4.5 million people in England alone own their home on a leasehold basis. Under the existing laws, owners of leasehold houses can only extend the lease once for 50 years with ground rent while leasehold flat owners can extend as often as necessary at a zero ground rent for 90 years. 

With the new changes, both house and flat owners can extend the lease to a standard 990 years with the ground rent set to zero. It’s a change that provides much more security to leasehold property owners and could save them considerable amounts of money in the long-term too. In fact, it’s a change that could save as much as £400 a year and even more in some cases. 

What Will Change?

The current drafting of the new Bill will change the law surrounding ground rents on ‘Regulated Leases’, which will be capped at a ‘peppercorn’ or zero. Additionally, material fines could be imposed on freeholders attempting to charge ground rents to leaseholders. The 2022 leasehold reform will affect ‘Regulated Leases’, which are leases granted after the date the legislation comes into effect. It will also affect leases entered into the commencement date but are re-granted after this date. The reform will consider shared ownership leases as ‘Regulated Leases’ too. 

However, the reform will not apply to ‘Excepted Leases’, which means any leases where the contract expressly permits the operation of a business, where the freeholder is a community land trust, if the property is within a building managed by a co-operative society, or where a rent to buy finance arrangement is in place. 

Further Changes Expected to Come

The 2022 leasehold reform offers financial benefits for owners of leasehold properties, but it could also impact other things too. For example, Marriage Value is a material issue for leaseholders. In instances where the lease has less than 80 years remaining on the term, the calculation of the amount that must be paid to a freeholder either to extend the lease or to purchase the freehold will include Marriage Value. This equals 50% of the increase in market value of the property, which is a result of the lease extension. 

Marriage Value doesn’t form part of the remaining term of the lease is 80 years or more, and in 2022, the reform won’t remove Marriage Value. But the abolition of this would be a huge benefit to leaseholders. Instead, the government has suggested that future reforms will seek to deal with the issue which could reduce the cost of purchasing a freehold or extending a lease. 

There’s also a suggestion that the future legislation for leasehold properties will expand the pool of qualifying tenants, which means that more leaseholders will have the right to extend the lease on their property. Currently, leaseholders need to have owned the property for more than two years, and those who do not own 100% of the property (i.e. shared ownership leaseholders) won’t be considered qualifying tenants, so they lose out on their statutory right to extend. However, while this isn’t included in the 2022 reform, it is expected to be added to future amendments.

A Welcome Change for Leaseholders

2022 looks set to provide a positive shift for leaseholders and now that the laws are being amended, it’s likely that connected issues will start to be reassessed to reflect the best interests of property owners. There are now calls for changes to the use of commonhold, an alternative to home ownership to leasehold, and shared ownership schemes to better support property owners in the future. With the property market still going strong, the next 12 months could provide large financial benefits for those in leasehold homes. 

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