On 11th May 2021, The Queen’s Speech includes confirmation that the Government intends some much needed reform to the Leasehold system in the current session.

In recent years, one of the biggest issues in lease contracts has been the inclusion of escalating ground rents – sometimes even doubling every ten years. These hidden terms have generated enormous profits for unscrupulous freeholders; while trapping leaseholders in virtually unmortgageable and unsellable flats and houses.

The key change will be to remove “Ground Rent” from all new (most) Leasehold contracts. Most leaseholders have already had a statutory right to a nil ground rent for some years – when extending their lease through the official “Section 42” process, – but this will now apply to informal lease extensions too, as well as to leases in new leasehold properties.

What would these leasehold reforms mean?

They’re still thrashing out the details, (more here), but in principle:- Without Ground Rent, once a lease is agreed, there will be no additional costs until it needs extending once again; and with much longer contract terms nowadays, this likely means nothing to worry about for 100 years into the future.

On the flip side, without the benefit of an annual Ground Rent, Freeholders will rightly expect to increase the cost of any extension or amendment to maximise the profit return on their investment. Options still being discussed within the current Leasehold Reform proposals include that: for leases with existing ground rents, lessees have to continue to pay these for the unexpired term until the new term begins. This will certainly be an area for more scrutiny, before any bill can be finalised.

We’ll watch this space with interest. However, as things stand, we wouldn’t recommend delaying your plans in the hope of better terms in an unknown future. If you need to extend your lease, or buy your freehold, then you should take professional advice from a solicitor with direct experience of leasehold enfranchisement, and of course an RICS Registered Valuer, such as Jackie Collis at Each Side Leasehold.

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