Ground Rents to be Banned from 30 June

The Leasehold Reform (Ground Rent) Bill received Royal Assent on 8 February 2022 meaning it is now an Act of Parliament (law), its provisions however do not come into force until 30 June. The Act applies to residential long leases granted for a premium and entered from and including the day the law comes into force. The Ground Rent band applies to new residential leases in England and Wales not existing leases. The Act does also apply to lease extensions of existing low lease flats.

This new Act does not change the issue of marriage value being payable on low leases. (Under 80 years). A bill on broader leasehold reforms is expected in the last session of this Parliament which is intended to deal with Reform of the valuation aspects of lease extensions & enfranchisement. However, the exact details of what this reform will entail is not currently clear, if the reforms follow the Law Commission’s recommendations, then it should provide for the following changes.

-No more marriage value

-A 990-year lease extensions right at nil rent

-An industry wide commission on Commonhold – a ‘Commonhold Council’ charged with preparing the way to make this work

The next phase of the reforms is at least 2+ years off becoming law. These are our views on the proposed next stage reforms.

No more marriage value

The proposal to remove ‘marriage value’, which often comprises up to 1/3 or more of the Premium element in many mid-lease length cases, is good news. This will not be popular with freeholders. This change will almost certainly be subject to legal challenge from Freeholders under human rights legislation.

Removing Marriage Value on Freehold purchases or Lease Extensions does not necessarily mean the cost of extending or buy your building’s freehold will become cheaper. Valuation is a complex area, and we would guess that the compensation element for Loss of Reversion could be increased to offset the proposed loss of marriage value.

990-year lease extensions at a nil rent

This is not a surprise – the plus 90-year lease extension has just been upgraded, by another 900 years and so won’t need doing again but 90 is usually sufficient for current owners’ lifetimes.

The nil rent element already exists for statutory extensions as things stand.

What does that mean?

If you are extending your lease or buying your freehold at the moment, no change. The proposed 2nd phase more radical reforms are likely to be challenged by freeholders.

Leaseholders (in most cases) need to act now as the mere ‘prospect’ of reform is not good enough. The longer you leave it to extend or to buy your buildings freehold interest the shorter the unexpired term of the lease becomes. There is still no guarantee that the Premium payable under the proposed new Law will be less. It might be worth while waiting for this 2nd phase legislation to come in if your lease has less than 60 years unexpired.

By waiting you are betting that the calculation on the future valuation model will be less on worst input variables (i.e. lower lease term and high property values etc), in most cases delaying the decision to enfranchise will cost leaseholders thousands more.