Prime Minister Andy Burnham has described leasehold arrangements as “unfair” for UK homeowners. This is a system which particularly affects Londoners: compared with other UK regions, the capital has the highest proportion of leasehold properties.
So, will new PM Andy Burnham bring about the changes originally promised by Sir Keir Starmer? Our estate agents in Ilford have joined forces with our estate agents in Newbury Park to examine the progress of draft government legislation introduced earlier this year.
What is ‘Leasehold’?
Leasehold is a glorified form of rental. It allows the householder to live in a property for a fixed period of time (typically between 99 and 125 years).
The buyer purchases the right to live in their home, thus becoming a ‘leaseholder’, but the ‘freeholder’ owns the land beneath the property, together with any common areas.
This permits the freeholder to charge ground rent on the land the property occupies. They can also levy a service charge for maintaining the building, plus all shared spaces within the site.
Some leaseholders can get permission to extend their lease or alternatively buy the freehold of an apartment block through a procedure known as collective enfranchisement. These legal processes are subject to certain conditions and requirements, so aren’t available to everyone.
How do leaseholders benefit from the current system?
A leasehold arrangement can work well for homebuyers eager to gain a foothold on the property ladder. Many leasehold properties are located in more desirable areas and may be more accessibly priced than freehold properties. A leasehold apartment in a block of flats can be a boon to busy people who don’t want the hassle of maintaining their properties. Such buildings often provide extra facilities (such as a gym or concierge service) plus attractive communal spaces, with all areas maintained by the freeholder.
What issues have been identified with leasehold properties?
Ground rent: leaseholders have no control over the level of ground rent charged by the freeholder. Some freeholders have been known to push up the cost of ground rent to unacceptable levels, making properties almost impossible to sell.
Service charges: these charges go towards the management and maintenance of the building, covering everything from cleaning and repairs to health and safety compliance and insurance. This is another area where charges can rise and residents have little control over the amount they must contribute.
Short lease issues: when a lease is approaching the end of its term (usually around 70-85 years), mainstream lenders are often unwilling to offer a mortgage on the property. This can knock tens of thousands off its market value.
Although statutory rights are in place for most owners to either extend the lease or buy the freehold, it is an expensive and complex legal process.
What has been achieved so far?
During Sir Keir Starmer’s premiership, a Commonhold and Leasehold Reform Bill was published in draft form. This set out plans for sweeping reforms to the leasehold system.
In May this year, the Bill was mentioned in the King’s Speech. A parliamentary committee also recommended that a final version should be introduced to parliament this autumn.
However, since Andy Burnham became the new Prime Minister, people have questioned whether he would be equally committed to the Bill.
What was proposed in the draft Bill?
Leasehold agreements to be replaced by a commonhold legal framework. This would allow owners of flats in an apartment block to manage the building themselves. Although legislation will initially be limited only to new-build apartments, it will act as the starting gun for a gradual phase-out of all leasehold agreements.
Existing ground rents to be capped at £250 per year. Ground rent to be eventually phased out, becoming a ‘peppercorn rent’ (a symbolic, nominal payment).
Regulation of payments and management systems will cut down the excessive fees that can be charged for routine admin tasks. Managing agents will be compelled to operate under a licensed and regulated framework.
Owners will no longer be threatened with losing their property when a lease agreement is breached.
What is the latest news on leasehold reforms?
Andy Burnham has recently stated his full support for leasehold reform. In his debut speech to the Labour Party conference in September, Mr Burnham promised to introduce a final Bill before Christmas, saying change was “long overdue”.
At the moment, however, there is no definite timeline for the proposed changes to be implemented.
Our dedicated agents will continue to watch the progress of the Leasehold and Commonhold Reform Bill, and we’ll keep you informed every step of the way.
As experts in the East London property market our agents are also ready to help with every aspect of buying, selling and renting. The areas we cover include East London and Essex together with parts of south and south east London.
Why not get in touch to share your moving plans today?
Call us at 020 3972 7341 or email info@oaklandestates.co.uk.
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