Unveiled, Radical plans to end huge costs of buying a freehold

Homeowners caught in the so-called "leasehold trap" may be able to covert their property from leasehold to freehold for a fraction of the price under radical proposals from the Law Commission.

 

A proposal has been made where leaseholders will pay just 10 times their current ground rent to convert their properties from leasehold to freehold. 

 

In December Sajid Javid who was at the time Communities Secretary, asked the Law Commission to find ways to make buying out a lease "much easier, faster and cheaper". The Law Commission have responded with two options for reform. The first is a formula that "could be based on ten times the ground rent" or "10% of the value of the property", saying any new rules must reduce the current cost for leaseholders.  

 

Current ground rents average around £370 a year, suggesting a cost of £3,700 which is far less than the £10,000 to £40,000 typically requested from a leaseholder for a property valued at £200,000 with fewer than 80 years left on the lease. There are 4.2m leasehold properties in England, and around half are on leases of under 80 years. 

 

Its second option is to standardise the existing regime for leasehold valuations, removing a complicated element called "marriage value" that it said currently increases the cost paid by leaseholders. 

 

The Law Commission also proposed new formulas for leaseholders who extend their lease rather than buying the freehold. It suggested that they could have a right to extend the lease for up to 250 years, and no longer need pay ground rents. Proposals made by the Law Commission are currently only at an outline stage, and a full consultation document is set to be published in the autumn with new rules unlikely until summer 2019. 

 

The Law Commission said it would have to ensure that "sufficient compensation" was paid to landlords. "Any changes to the law that government takes forward will have to comply with human rights legislation and take account of the impact of reform.

 

"And while some changes – in particular the options that we have been asked to present to reduce the premium payable by leaseholders – will inevitably benefit leaseholders at the expense of landlords, that is not the case across the board."

 

Around one in five new-build houses in recent years – and almost every flat – have been sold as leasehold, some with spiralling ground rents that have made selling them near impossible.

 

If you require legal advice regarding the purchase of a property then please contact our expert legal team on 0161 928 5558.