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Leasehold System – proposals relating to extended leases & ground rents

Dan Ongley

15th January 2020

At the end of last year I wrote about prospective reforms to the residential leasehold system in England & Wales, including a proposal to ban ground rents on new build flats. While we still wait to hear about when or whether this reform (and others) will be introduced, last week the Law Commission published further proposals for reforms that will be highly relevant to the owners of the four million or so flats in England & Wales.

The proposals relate to the method by which the purchase price for an extended lease (and as a consequence, the freehold of a block of flats) would be calculated. There are three headline proposals relating to extended leases, which are:

  • Prescribing some of the rates used to calculate the purchase price. The appropriate rates are often the subject of (costly) disputes when a flat owner makes a lease extension claim. Prescribing the relevant rates would end these disputes and, presumably, if “tenant friendly” rates are used, they would drive down the purchase price itself.
  • Assisting flat owners with onerous or “toxic” ground rent obligations – for example ground rents that double every 10 years – by capping the level of ground rent used to calculate the purchase price. It is important to note this is not a proposal to cap such ground rents, but to cap the figures used to calculate the sum payable to buy out the ground rent.
  • The introduction of an online calculator for determining the purchase price (this would surely be the most radical reform).

In response, the Housing Secretary Rt Hon Robert Jenrick MP said “I will consider the proposals outlined in this report carefully and set out our preferred way forward in due course”.

Reforms of this nature would be an “easy win” for the newly elected Conservative Party espousing its credentials as a “government for all”. Let us hope it finds time in its busy legislative agenda to introduce at least some of these proposals.

Watch this space… 

Author: Dan Ongley, LLP Partner and Head of Commercial 

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