The latest on leaseholds
Mon 06 Feb 2023
Paul Bennett, Director
The revolving door at Westminster means Michael Gove is back at the helm as Housing Secretary. The reprisal of the role allows Gove to start unfinished business and the estate agents at Behr & Butchoff are closely monitoring his ideas concerning leaseholders and freeholders.
What is the current leasehold system?
The current leasehold system harks back to feudal times when landowners controlled the estates and charged tenants rent to stay in properties on their land. The system has somewhat morphed to the advantage of freeholders. Today, a freeholder can sell a property to a buyer but only grant the ownership – a lease to live in the property - for a set length of time. That buyer then becomes the leaseholder.
As well as charging the leaseholder a handsome sum for extending their lease so they can continue living in the property – a fee that gets more expensive the closer the lease gets to zero years left – the freeholder can charge ground rent and uncapped management fees.
Why is leasehold so important in London?
The leasehold system almost exclusively applies to flats and apartments – of which there is a high concentration of in St. John’s Wood and elsewhere in the capital. The developer or investors of a mansion block or collection of flats will invariably retain ownership of the land, then subsequently sell individual units on a leasehold basis.
What changes are proposed?
Michael Gove has gone on record to say that the leasehold system is an unfair form of property ownership and that if you buy a flat, it should belong to the owner and not ‘leased’ by a freeholder.
Having said that, it is unlikely that the leasehold system will be scrapped, despite a new YouGov poll revealing nearly half of adults in Britain would be in favour of abolishing the leasehold system.
Instead, the system will be reformed. Alterations will apply to both new and existing leaseholders, with legislation promised before the end of 2023. The initial aim is to stamp our poor value property management, end disproportionate costs to extend leases, and make the sale of leasehold properties quicker and cheaper. The overhaul will also prevent freeholders or developers passing on the cost of remediation where buildings are deemed unsafe.
Gove also wants to reform The Commonhold and Leasehold Reform Act 2002 – also known as the ‘right to manage’ process. This is when leaseholders in a block of flats join together take control from the freeholder by bringing the building into common ownership.
Instead of a freeholder setting the management fees and collecting ground rent, each property owner becomes a director of a management company and they pay management fees, which are written in the property’s deeds
Currently a common barrier to right to manage is costs, as the freeholder’s legal fees are usually passed on to the leaseholders. This entitlement would be scrapped under the proposed reforms.
If you are a leaseholder, or are looking to buy a leasehold property in London and want to know how the planned reforms will affect you, please contact the Behr & Butchoff team.