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Good news for leaseholders, bad news for freeholders

The laws around leaseholds and freeholds are changing, so listen up.


In case you’re not aware, freeholders own the land on which a property is built and then a leaseholder has the right to occupy that land for a certain period of time.


Historically, one of the ways in which freeholders have earned money is by charging a ground rent to the leaseholder, which is usually a very low amount.


Council leases, for example, only pay £10 a year, but in recent years developers began to realise that ground rents could be potentially lucrative.


As such, ground rents started getting increased to up to £500 a year, but then the government stepped in.


In June 2022, the government introduced legislation outlining that any new leases could not be issued with ground rents more than a ‘peppercorn’, which is essentially just a really small amount of money.


And now, the government are doubling down and they will be looking at reforming the laws around existing leases by bringing their ground rents down too.


They are also considering changing how long you can extend your lease for from 90 years to 999 years, so you’ll never have to do it again.


As well as this, they’ll be simplifying the premium you have to pay when you renew your lease as well, because the current calculation is quite complicated involving something called a marriage value.


When your lease gets below 80 years, it becomes much more expensive to extend, so the government will be changing this, making it possible to extend leases for a significantly lower premium.


This legislation was announced on November 7, but it hasn’t been implemented yet, so we don’t know the full details.


Leaseholders and freeholders, however, should be aware that this is something the government will enact within the next year to get it through before the general election.


And at Rocket, as always, we will be keeping our clients up to date on how this may affect their property assets and what is the best way to move forward.


But, for the most part, we expect this to be very positive for the majority of our clients.