Following last year’s landmark recommendations from the Law Commission, the Government has recently announced proposals to reform the way that enfranchisement valuations and lease extensions work.
At present, if an owner of a leasehold house or flat wants to extend its lease, subject to satisfying the necessary qualification criteria (which includes having been the registered owner of the house or flat for at least 2 years), they will – for a price – be able to extend the remaining lease term by 50 years in the case of a house and by 90 years in the case of a flat. The Government proposes that for both houses and flats, the lease granted will be for 990 years at a zero ground rent.
The Government has also announced its aim to abolish marriage value that is payable if a lease extension is sought when the lease term remaining is less than 80 years (this can significantly affect the price payable for the cost of seeking a lease extension or for buying the freehold of a building). There are also plans to introduce an online calculator with the aim of simplifying the valuation process for leaseholders.
Since the announcement was made, we have seen enquiries from both existing and prospective clients. This is to be expected, as the announcement is quite narrow and there is little detail. The Law Commission has suggested other changes in this area of law in its blockbuster reports from last year, and the government has yet to give a view on these.
It is important to bear in mind that no draft legislation has been prepared, and there is no timetable established, so it could take time before legislation may be enacted and/or implemented. Indeed, some freeholders may want to challenge attacks on marriage value through the courts.
If the Government’s plans came to fruition – which could be years down the line – there may well be no marriage value to pay, although the lease length will have reduced further and that may also have an impact on price.
Ultimately, it is a commercial decision as to whether a leaseholder wants to proceed now with a lease extension claim.
It should also be noted that, as the law stands, short leases may be difficult to sell or obtain finance against, so in those circumstances, there may be every reason not to wait to extend a lease whilst waiting for the government’s ‘announcement’ to take shape.
If you would like any further information, or have any questions regarding Leasehold Enfranchisement, please get in touch with John Midgley at [email protected] or 020 7725 8068.