Leaseholders in limbo are expected to be more proactive this year as they seek to escape from short leaseholds and onerous ground rents which have left them unable to sell their properties. That is the opinion of leasehold expert Jonathan Frankel, a partner at Cavendish Legal Group.
The law firm saw an increase in enquiries last year from people seeking a solution for properties which major banks and building societies will not provide a mortgage.
Frankel predicts a further increase this year as leaseholders decide to seek legal resolutions to their situations rather than wait for changes to the law.
He said: “During 2021 we were contacted by more people than ever before. This is likely to rise in 2022 as a result of the National Leasehold Campaign highlighting flaws in the current system, notably leases that have only a short amount of time remaining, and ground rents that can be increased to onerous levels by the freeholder.
“There is a growing awareness among leaseholders that they do not have to wait for the Leasehold Reform (Ground Rent) Bill that is presently going through Parliament to become law, and that there are statutory solutions they can take now.
“In addition, some people have realised that even when the bill becomes an act the provisions in it will not address their situation. In particular, it will not apply to rising ground rents on existing leaseholds, leaving homeowners with such leases in a state of limbo unless they take legal action to resolve their situation.”
Frankel explained that the Leasehold Reform (Ground Rent) Bill proposes enabling leaseholders to add an additional 990 years on top of their remaining lease term – effectively forever.
However, he added that it is unclear when the bill will become law, and as a result leaseholders of properties on which major banks and building societies will not lend are increasingly asking for advice on two statutory options.
The first is to buy out the freehold entirely – whether it be for a leasehold flat or house – and become their own landlord.
The second is to extend the lease by an additional 90 years for an apartment or 50 years for a house and reduce the ground rent to what is known as a ‘peppercorn’ or nominal amount.
Frankel said: “Leasehold enfranchisement – the process of either extending a lease or purchasing a share of the freehold – creates security for homeowners and also maximises property values, as longer leases are more appealing to potential purchasers and to mortgage providers.”
The first is to buy out the freehold entirely – whether it be for a leasehold flat or house – and become their own landlord.
The second is to extend the lease by an additional 90 years for an apartment or 50 years for a house and reduce the ground rent to what is known as a ‘peppercorn’ or nominal amount.
This is potentially misleading. There are many instances where leaseholders of flats do not qualify for the right to buy the Freehold, and under the 1967 Act for houses, there is no obligation on the part of the Landlord to reduce the ground rent to a peppercorn or nominal amount. As I understand it, under the 1967 Act you are only allowed to extend the lease ONCE, unlike the 1993 Act for flats, so if your lease is really short, you only get a 50 year extension with a ‘commercial ground rent’ and with no right to further extend and potentially, like in the case of a leasehold house I recently sold, no right to the Freehold either due to attached garages not demised to the property in question.
These new reforms don’t go anywhere near far enough in solving these medieval practices
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