The King's Speech - Lease Extension Reform
Leasehold reform has been a hot topic in recent years, with discussions surrounding the need for change gaining momentum. The British monarchy has often played a symbolic role in the country's history, representing tradition and continuity. Similarly, leasehold reform is seen as a necessary modernisation of property laws that have been in place for centuries. In this article, we'll explore the significance of leasehold reform, its expected changes, and how it relates to a speech from the King, highlighting the need for reform in the realm of lease extensions.
When was the King's Speech?
King Charles III opened the fourth session of parliament on 7th November 2023.
What was said?
The speech was anticlimactic causing a lot of dissapointment for leaseholders. The King only briefly touched on the subject and mentioned nothing more than what we already know.
"My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges. Renters will benefit from stronger security of tenure and better value, while landlords will benefit from reforms to provide certainty that they can regain their properties when needed."
What to expect
There will be no instant change in legislation. The speech was intended to introduce the governments proposals for the future. At this stage, everything is very speculative, as any changes have to be debated in parliament over the course of many months, following that, The Office of the Parliamentary Counsel (a group of government lawyers who specialise in drafting legislation) have to write the changes into law, before the King is invited to give it Royal Assent. Expect an enormous amount of lobbying from large freehold corporations, councils and possibly even representatives of the King himself to attempt to block any changes that would put freeholders out of pocket. Nationwide revenue from lease extension completions is enormous, it a fundamental stream of income for some local authorities and without it, the government would have to make up the differece in increased funding. Decreased capital gains tax revenues from completed lease extensions would only exacerbate this.
Likely future changes
- Amend the ability to extend by +90 years to a new 990 year lease - subject to a higher premium.
- Newly granted leases will be at nil ground rent, but most likely existing leases will remain with contractual ground rent.
- The freeholder to pay their own costs. Currently the leaseholder pays the freeholder's costs.
- Removal of the requierment to own the property for at least 2 years to qualify.
- Empowering Leaseholders: Reforms are likely to shift the balance of power in favor of leaseholders, giving them more control over their property, maintenance, and service charges. This would minimise disputes and improve the overall living experience for leaseholders.
Possible, but less likely reform
- Abolish marriage value for leases that have less than 80 years remaining. Freeholders (including the King himself) currently benefit from marriage value, so expect them to lobby the government to prevent this.
- Fixed premiums set by a government online calculator, rather than utilising lease extension valuers for both the leaseholder and freeholder.
- Compensation for Unfair Ground Rent Clauses: The reform may address cases where homeowners have been subjected to unfair ground rent clauses, offering compensation for those who have been adversely affected.
The anticipated leasehold reform changes for lease extensions are designed to reflect a commitment to modernise property laws and create a fairer and more transparent system for homeowners in the United Kingdom. The King's Speech will serve as a symbolic reminder of the importance of these reforms in ensuring that property ownership benefits all subjects of the kingdom. As these changes take shape, they aim to address the longstanding issues faced by leaseholders and usher in a new era of fairness, transparency, and security in property ownership - although that's what we hope, if you have faith in the government.
What are the risks of waiting?
- Those with more than 80 years remaining could pay a higher premium. Marriage value could be tapered in. The current legislation means marriage value kicks in overnight at the 80 year mark. Instead, this could be applied on a gradual basis, but possibly from 90 years. This means those with less than 80 years will pay less, but those with more than 90 years will pay signifcantly more.
- The remaining term on the lease diminishes whilst you wait. This increases the premium on a ay by day basis.