Morgan Sloane

Government reforms to make it easier and cheaper for leaseholders to buy their homes


On 7 January 2021 the Government announced major reforms to the leasehold enfranchisement system with the headline “Government reforms make it easier and cheaper for leaseholders to buy their homes - Millions of leaseholders will be given a new right to extend their lease by 990 years”.

What does it mean?

The Government are looking to reduce the costs of lease extensions and enfranchisements for leaseholders by prescribing the rates to calculate the premium as well as by removing marriage value.  This is designed to reduce professional fees and make the premium payable to the Freeholder cheaper.

When will it be in place?

Quite simply the Government guidance is unclear and there are still a number of stages before we can advise you on all the implications.

1.       House of Commons
2.       Drafting of the legislation
3.       House of Lords
4.       Decision on the correct rates to be applied
5.       There may also be multiple legal appeals due to the huge loss of value to private investment firms and pension funds, via Article 1 of the Human Rights Act

We believe it will be at least 2 years and up to 5 years before we see any form of clarity and implementation.

How much will it affect the cost of the lease extension?

We simply have no idea.  If the legislation is passed and implemented, the change may offer leaseholders considerable savings.  However, the press release from the Government is rather unclear and we are unable to advise you of the change in costs.  We will of course do that as soon as we are aware.

What is marriage value?

Marriage value is the increase in the value of the property following completion of the lease extension, reflecting the additional market value of the longer lease.  The Freeholder is currently entitled to 50% of this.  Whilst the removal of this will benefit leaseholders if the current valuation rates apply, if the Government decides to adjust any of the current valuation rates such as deferment or capitalisation rate, the impact of no marriage value could only be marginal.

What happens to existing cases?                        

As it stands, nothing.  Cases continue to proceed; negotiations may be affected if the Freeholder decides to take a view on matters however, we do not expect this, and they will look to extract as much value from their asset as possible.  Every Freeholder is different but in reality, we doubt very much any impact on current premiums.  The valuation date is locked in and the lease extension will reflect the market at this time and as it stands, marriage value is very much payable.  We do not envisage any retrospective action at this point but there may be compensation payable in the future, we simply have no idea at the moment.  Our stance is to press on with your case as costs will have already been incurred on both sides and you will be liable for them whatever happens.

What should you do?

If you are selling, regrettably its not something that can wait and you may experience some negotiation on the agreed price.  If you are simply looking to extend, you may wish to hold out and wait, but we do urge caution with this approach.  It may be 2-5 years for the legislation to become law and the cost of waiting could prove greater than the benefit.

Further reading:

Links to further reading on the topic, some are aimed at the ‘layman’, whilst others are more technical:

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