Leasehold scandal: government pledges to really make it cheaper to increase leases and cut ground rents
The government has pledged to provide leaseholders in England the authority to extend their leases by 990 years and end their ground rent payments for good.
The leasehold scandal has witnessed countless homeowners saddled with unsellable properties because of escalating ground rents, uncapped service charges and difficulties buying their freeholds.
Here, we explain the latest steps the federal government takes to reform the leasehold system.
Proposed changes to leases and ground rents
The government continues to be investigating the leasehold system since 2021, and is now starting to act on recommendations produced by the Law Commission in July this past year.
990-year leases as well as an end to ground rents
The proposals mean leaseholders can extend their leases for 990 years and will no longer have to pay an annual ground rent to their freeholder.
Theoretically, this could end the practice of freeholders charging ever-increasing ground rents and give the leaseholder the security of not having to extend the lease again in the future.
Reducing the price of extending leases and purchasing freeholds
The government says an online calculator will be designed to figure out how much the leaseholder will have to pay to extend their lease or buy their freehold. This would potentially stop freeholders quoting unreasonable and inflated prices.
The government says the formula determining the cost of freeholds will include a discount for any small remodels the leaseholder has made.
Commonhold Council to be set up
The government has additionally announced it will generate a Commonhold Council, that will include leasehold groups and industry representatives. It says this will prepare the marketplace for a widespread take-up of a commonhold system later on.
Commonhold involves buyers of flats owning the freehold for their individual property and forming an administration company along with other residents within their block – thereby putting themselves in control of service charges and taking out the requirement for third-party freeholders and management companies.
A move to a commonhold system was one of the main recommendations made by what the law states Commission in the report this past year.
When will the alterations come into force?
The government says it'll bring forward legislation on ground rents within the upcoming session of Parliament, which starts in the spring.
It has pledged to ban new-build houses being sold as leasehold later on, and he has confirmed that ground rents will also be reduced to zero on new retirement properties.
It says an additional response to the Law Commission's recommendations – including the proposed shift to commonhold – will be 'brought forward in due course'.
Today’s announcements should mean future buyers will be spared the punitive costs facing countless existing leaseholders.
The many householders who remain affected will have to extend their leases or buy their freeholds to become free of their current charges – and will therefore face a waiting game until these reforms enter into force.
Which? and the leasehold scandal: a timeline
Today's announcement is the biggest step the government has had to date in outlawing issues with leasehold houses and punitive ground rents, that have been first raised in 2021.
In June 2021, Which? investigated the leasehold scandal, talking with nearly 200 leasehold homeowners who faced spiralling costs – from ground rent 'doubling' clauses to expensive permission fees. You will find a timeline in our coverage of the leasehold scandal before today’s announcement below.
- June 2021: Government launches consultation into banning new-build leasehold houses
- September 2021: Leasehold consultation closes
- December 2021: Government announces intends to ban leasehold new-build houses and lower onerous ground rents
- June 2021: Which? publishes its shocking findings on the leasehold scandal
- September 2021: Report claims nine in 10 leasehold buyers regret their purchase
- October 2021: Government launches second consultation into capping ground rents
- March 2021: Select committee requires a change from the leasehold system (see our submission to the inquiry here)
- February 2021: CMA to take action on leasehold mis-selling
- July 2021: Leasehold house sales could finally be banned
- September 2021: CMA launches action against developers over mis-selling
