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Rawdon Crozier reviews recent Government proposals for leasehold reforms

16th June 2021

Rawdon Crozier, of KBG Chambers, who is currently involved in a number of professional liability claims against solicitors who acted for purchasers of new-build leaseholds with high or escalating ground rents on recent Government proposals for leasehold reform.

On the  7th January 2021 the Ministry of Housing Communities and Local Government (MHCLG) issued a Press release entitled Government reforms make it easier and cheaper for leaseholders to buy  their homes of which the following passages were, perhaps, the most relevant:

“          For some leaseholders, these changes could save them thousands, to tens of thousands of pounds.

            …

“          A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

“          The government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent.”

In referring to “today’s changes”, as it did at various points, the press release was misleading because what had been announced were prospective changes, the details of which, beyond the abolition of marriage value and the introduction of a simplified cost calculator, were unspecified.

As a statement of intent, however, the Government had taken the, in my experience, unusual, step of briefing various leasehold campaign groups in advance, so I had had an e-mail from a friend warning me to keep my eyes open for the Press Release the day before it came out.

The first step in those reforms, the Leasehold Reform (Ground Rent) Bill [HL] was introduced on the 12th May 2021 and given its second reading on the 24th May 2021. It has now passed through committee.

Under Section 1, the new legislation will apply to “regulated leases” and prohibit ground rents other than at a peppercorn, a regulated lease will be a long residential lease “granted on or after the relevant commencement day”, which will be “the day on which this Act comes fully into force in relation to leases of that kind”. In its present form the bill is not retrospective in effect (nor is it expected to be), so that while it will preventing future long leaseholders from falling into the Housing Act/AST Trap (the legislative ‘trap’ created by the Housing Acts 1988 and 1996 under which a long lease is rendered an Assured Shorthold Tenancy when ground rent exceeds £1,000 in London or £250 elsewhere), it will not provide a way out for existing leaseholders. The further proposals are still relatively sketchy and the delay until 22/3 for the main body of the proposed legislation is probably because of the need for a White Paper and consultation on the detail. Given the way the legislation was trailed, what has been introduced calls to mind Churchill’s observation about the Anzio landing in WW II “I had hoped we were hurling a wildcat into the shore, but all we got was a stranded whale". In terms of its utility in aiding current leaseholders, Lord Blencathra in the debate on the bill’s second  reading, came up with an equally colourful description, commenting that he would support it despite its inadequacy because it was “a small step in the right direction and because” he had “never before been involved putting lipstick on a pig, which the Bill attempts to do.”.

While the abolition of marriage value will have a significant impact on the cost of enfranchisement when the lease has 80 years or less to run, in a case where marriage value does not come into the equation, other than:            

(1)        saving the professional fees of surveyors and

(2)        removing uncertainties about the cost of enfranchisement,

whether the introduction of an online calculator will significantly reduce enfranchisement cost is a matter of speculation. Abolishing marriage value is something that the Government would be able to say justified what was said in the January Press Release, so it does not follow that the online calculator will significantly reduce what a leaseholder with a lease of over 80 years might have to pay to enfranchise, but, of course, it may. And I am now going to congratulate myself for not having ended the preceding sentence with “pigs might fly”..

 

 

 

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