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leasehold reform

Simplify leasehold system says Law Commission

Extending a lease or buying the freehold on a property should be simpler and more cost-effective.

That’s the findings of the latest report from the Law Commission, which has been consulting on reform of the leasehold property system for the last two years.

The commission says reform must be fair to both leaseholders and to the freeholders who own the land on which their property stands.

It has suggested three potential schemes for deciding the lease premium – how much it is worth – and other reforms such as a cap on ground rents and a simplified process for buying freehold.

Issue over length of lease

In England and Wales, there are around four million leasehold properties. Many of those are former local authority homes bought under Right to Buy.

The leasehold system means the homeowner only owns their property for the length of the lease, which is usually set for a long period of time.

The issue arises when the lease period drops below 80 years. At that point lenders are reluctant to offer a mortgage because ownership of the property will revert to the freeholder when the lease runs out.

Extending the lease or buying out the freehold can be a lengthy and expensive route.

Ground rents a contentious issue

Added to that is the issue of ground rents. These are paid annually to the freeholder and are often of a peppercorn variety, that is only a very small amount.

However, the Government had to step in after house builders and developers started selling new-build properties as leasehold. The leases included onerous ground rent clauses that saw rent doubling annually. That has made some properties unsellable.

Last year the Government outlawed the sale of new-builds as leasehold unless in exceptional circumstances. Most flats are leasehold and their owners face regular maintenance charges as well as ground rents.

The Government is to study the Law Commission’s proposals before deciding on a response.

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