In the biggest change to English property law in the last 40 years, the Ministry of Housing, Communities & Local Government has announced its long awaited proposals for leasehold reform.
The key proposed legal changes include:
- an ability for leaseholders to extend their lease of their flat or house by up to 990 years with no ground rent;
- the abolition of prohibitive costs of extending the lease (such as "marriage value") and set calculation rates by reference to an online calculator to make the process fairer, transparent and cheaper;
- a cap on ground rents when a leaseholder either choses to extend their lease or become a freeholder;
- setting future ground rents to zero for new leases;
- establishment of a "Commonhold Council" made up of representatives from the property industry, leasehold reform groups and the government to assist in the anticipated uptake in commonhold structures which allow homeowners to own the freehold with each of the owners managing the provision of common facilities through a commonhold association.
In a surprise move, the government has included retirement properties in these proposed reforms. Previously, the government had indicated the senior living industry would be exempt from any such changes to ground rent reform. Ground rents have been commonly used in retirement living developments to help developers offset some of the increased costs that are incurred in such schemes compared to standard residential developments due to the need to provide a greater extent of communal facilities.
This move is likely to prove controversial and some retirement operators have already expressed dismay at these latest proposals. They have warned that these reforms may in fact lead to higher prices for this specialist accommodation and adversely affect supply at a time when the government is hoping to rely on housing with care to relieve pressure on the NHS.
However, the impact of these reforms on the retirement industry will not be as great now as they would have been several years ago. This is for two main reasons:
- a number of operators have anticipated these reforms and have been exploring different deferred management charge structures in place of ground rents. Whilst these can be controversial in themselves, they can allow for greater flexibility over the lease term;
- there is a trend in the industry to move towards a part sale, part rental model on larger developments. Whilst mixed tenure models potentially open up a new market, they also bring challenges for operators.
The government has indicated that the legislation to set future ground rents at zero will be brought forward in the upcoming session of parliament, with a response to the Law Commission's recommendations on leasehold enfranchisement, including commonhold, in due course.