Leasehold Reforms

There has been much recent press speculation that the government intends to introduce some significant reforms to Leasehold law.

This has been prompted by indications from the government, over quite some time, that leasehold law is to be reformed in a number of impactful ways. The common theme and motivation for such reforms is the concern that the law as it stands, results in an unsatisfactory and inequitable imbalance in favour of Landlords, against their leaseholders.

The cause to address this imbalance is not a particularly new concept from the government, as if one observes the variety of property legislation that has been enacted over the past three decades, one can see a clear pattern which provides leaseholders with a steadily increasing variety of rights and powers.

The proposals for reforms seek to tweak the laws that govern these rights and powers, but potentially in some substantial and controversial ways.

History:-

The government sought the advice of the law commission, but It has been commented that other important matters such as Brexit and the Covid pandemic have taken parliamentary priority, which is one a variety of reasons that there has been relatively slow progress.

The Proposals:-

There are a variety of proposals, such of which appear to be more likely to be passed than others, however, it is still room for debate as to whether any of the proposals will ever become law.

If one looks at the last few consultations between the government and the law commission, several have been shelved, potentially indefinitely. However, while there is a degree of uncertainty over what will be brought into effect, the government has pledged to deliver substantial changes, and as such, while it is likely that we may not see such changes become enacted unto the year 2023, and precisely what form of the many proposals will come to pass, it is almost certain that changes will be an inevitability.

What are regarded as the most likely and most impactful changes?

Lease Extensions:-

Currently, leaseholders are generally entitled to claim a statutory 90-year lease extension under the 1993 Act legislation. By doing so, they are expected to pay the Landlord a sum of money known as the “Premium”, which is to be calculated in accordance with a particular legislative equation. While the equation results in the Premium being higher, the shorter the lease is when the right is claimed, there is an additional factor known as “marriage value” which  comes into effect whenever the lease extension is shorter than 80 years in length, and the further elapse into this 80 year period results in an exponentially costlier Premium.

Press commentary tends to focus on the government proposal to modify this such that a leaseholder achieves a 900-year extension, and furthermore that “marriage value” shall be abolished completely.

This will have a dramatic effect on many leases in existence which have short terms remaining, as it will mean that a Landlord will derive much less in exchange for granting the extension. For this reason, it is controversial, and some commentators have speculated that it is more likely that the current equation will be replaced with a modified version instead.

However, until the draft legislation has been presented, this is still highly uncertain. We shall provide updates as soon as more clarity on the subject matter is received from the government.

For more details on this article or if you have any related questions contact Daniel Tang on 0208 290 7373 or email dtang@judge-priestley.co.uk