This reform of the leasehold system will give leaseholders in England the right to extend their leases by 990 years and end their ground rent payments once and for all.

The leasehold scandal has seen millions of homeowners burdened with unsellable properties due to escalating ground rents, uncapped serviced charges and difficulties buying their freeholds. Some buyers have argued that they were caught in a leasehold trap, with rising ground rents and unfair fees. Leasehold house owners are often charged expensive ground rent as well as fees if they want to make changes to their homes. A leasehold house can also be difficult to sell.

Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.

The government has been investigating the leasehold system since 2017 and is now beginning to act on recommendations made by the Law Commission in July 2020.

 What do the government’s steps to reform the leasehold system mean?

The proposals mean leaseholders will be able to extend their leases for 990 years and will no longer need to pay an annual ground rent to their freeholder. In theory, this would end the practice of the freeholders charging ever-increasing ground rents and give the leaseholder the security of not needing to extend the lease again in the future.

Future buyers will be spared the punishing costs facing millions of existing leaseholders.

An online calculator may be created to determine how much the leaseholder will need to pay to extend their lease or buy their freehold. This would potentially stop freeholders asking for unreasonable costs.

The formula determining the cost of freeholds will include a discount for any home improvements the leaseholder has made.

The government has also announced it will set up a Commonhold Council, which will include leasehold groups and industry representatives. By doing so, this will prepare the market for a widespread take-up of a commonhold system in the future. Commonhold involves buyers of flats owning the freehold to their individual property and forming a management company with other residents in their block – thereby putting themselves in control of service charges and removing the need for third-party freeholders and management companies.

In summary, these new measures would fundamentally make home ownership fairer and more secure.

 When will the changes come into force?

The government says it will bring forward legislation on ground rents in the upcoming session of Parliament, which starts in the spring.

It has already pledged to ban new-build houses being sold as leasehold in the future and also confirmed that ground rents will be reduced to zero on new retirement properties.

The many homeowners who remain affected will need to extend their leases or buy their freeholds to be free of their current charges – and will therefore face a waiting game until these reforms come into force.

This is the biggest step the government has taken so far in outlawing issues with leasehold house and punitive ground rents, which were first raised in 2017.

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