The government needs to stop the bluster and deliver on the leasehold reforms.

The government again reaffirmed its commitment to deliver on the leasehold reforms published at the end of 2019. Since then, we have had three new Prime ministers and six new housing ministers. 

The government has again renewed calls to replace, in its own words, the "feudal" leaseholds in England this year. Michael Gove, the Secretary of State for Housing, stated, "We want to introduce legislation in the final parliamentary session – later this calendar year – to change the leasehold system. " Mr. Gove described the current leaseholds as "an outdated feudal system." So why is it taking the government so long to introduce the leasehold reforms, and how will it impact the 4.6 million leaseholders in England? 

Why is it taking so long to deliver the housing policy?

This week's cabinet reshuffle will mark the 15th new housing minister since 2010. The high turnover of housing ministers under the conservative government has impacted the delivery of housing policy significantly and led to significant delays in the delivery of leasehold reforms and other housing policies. The pandemic may have also affected getting the new leasehold reforms through, as government priority would inevitably have shifted during that period. 

What are the issues regarding the leasehold form of home ownership? 

When a leaseholder buys a house or a flat, they only purchase the right to live in that property for a set amount of time, i.e., 99 years, 125 years, or 250 years. They pay the freeholder ground rent, which in most cases will double every ten years, and service charge for maintenance of common areas and with the leaseholder having very little control over this.

Suppose the lease of your house or flat drops below 80 years. A leaseholder must pay additional prohibitive costs called "marriage value." In that case, this is a premium charged by the freeholders based on the assumption that the home's value will increase by extending the lease or purchase of the freehold.

The managing agent appointed by the freeholder charges extortionate fees when it comes to selling your property. Charging up to £500 to provide leasehold information packs known as LPE1 & LPE2, which are essential for the sale of the house or flat, also delays the sale by 6 to 12 weeks.

In governments' words, this form of homeownership ownership is "an unfair form of property ownership." The laws are 150 years old and were used by large landowners around growing cities to profit from selling houses while keeping ownership and income from the land on which they were built.

What are the proposed changes?  

• The government, in its new reforms, has proposed to scrap the marriage value calculations of extending a lease under the new leasehold reforms. Giving leaseholders the right to extend by 999 years with zero ground rent. 

• The government will also create an online calculator that will standardize a lease extension's cost. 

• Proposal to create a commonhold council of representatives from leasehold groups, the housing industry, and the government to promote and prepare for the widespread take-up of commonhold is also part of the reforms.

• The fees that managing agents charge will be capped at £200 (plus VAT), and the freeholder must provide the information requested within 15 days as opposed to 12 weeks under the previous law.

How much will the leaseholders save?

Andrew Wishart of capital economics suggests that "it is clear that leaseholders will gain most where ground rents are 0.1% of the property value". For instance, looking at a flat worth £250,000 with 125 years left on a 250-year lease with ground rent being £100 a year, doubling every ten years. Wishart suggests extending the lease to 990 years would currently be £54,000. However, if the new reforms capped ground rents, the cost of extending will fall to £4,920.

There will be further relief for leaseholders as the fees that managing agents can charge will be capped at £200 + VAT. The managing agent will also be required to provide the requested information within 15 days, resulting in fewer delays in selling leasehold properties. 

The online calculator will ensure a standardized cost to extending the lease and be a much more transparent process of extending the lease or obtaining the freehold. As opposed to the current system, which is much more ambiguous

The proposed changes are a step in the right direction, but they must be delivered soon. Criticism of the rules has intensified after the cladding scandal. Many homeowners have faced crippling bills and cannot sell their homes after buying leasehold flats that freeholders refuse to make safe. The proposed changes could not come sooner for the 4.6 million leaseholders.