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Millions given right to extend lease by 990 years at zero ground rent

Paloma Kubiak
Written By:
Paloma Kubiak

Leaseholders will be given a new right to extend their lease by up to 990 years at zero ground rent, helping save thousands of pounds and ending rip off practices in the scandal-hit sector.

As part of the biggest reforms to English property law for 40 years, the move, announced by housing secretary Robert Jenrick, is expected to make homeownership “fairer and more secure”.

Currently, many leaseholders face high ground rents, with freeholders able to increase the amount with little or no benefit seen by property owners.

In recent years, houses and not just flats, have been sold on a leasehold basis with owners finding ground rents have doubled in just a decade, making the properties difficult to mortgage and sell.

Further, 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.

Today’s changes mean both house and flat leaseholders will be able to extend their lease by up to 990 years with a ground rent at zero.

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 enable leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

The government will also abolish prohibitive costs like ‘marriage value’ which assumes that the value of holding both the leasehold and freehold is greater than when held by separate parties.

Jenrick said: “Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

“We want to reinforce the security that homeownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.

“These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”

As part of the radical change, the elderly will also be protected as the government said it will reduce ground rents to zero for all new retirement properties.

The government is also establishing a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare the market for the widespread take-up of commonhold.

Under the commonhold model, blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too.

Professor Nick Hopkins, commissioner for property law at the Law Commission, said: “We are pleased to see government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler. The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own.”

Legislation to set future ground rents to zero will be brought forward in the upcoming session of parliament, which will be the first part of a two-step reformation process.