The government is reforming the system to make it easier and cheaper for leaseholders to extend their leases.

Millions of homeowners with leasehold properties will be given a new right to extend their lease in a major shake-up that could see some households save tens of thousands of pounds.

Housing secretary Robert Jenrick has announced that people with leasehold homes in England will be given the right to extend their lease by up to 990 years at zero ground rent.

He said that the measures come as "part of the biggest reforms to English property law for 40 years, fundamentally making home ownership fairer and more secure".

Unlike a freehold property, people with a leasehold property do not own their home outright, but only have the right to live there for a set period of time, with leases typically running for between 99 and 125 years. The land on which a leasehold property sits is owned by a freeholder.

Homeowners can extend their leasehold or even buy their freehold, but the process can be complicated and expensive.

Leaseholders also have to pay annual rent – known as ground rent – to the freeholder.

Under the current law, many leaseholders face high ground rents, which the owner of the land can increase without having to provide any justification.

Why is this happening?

An estimated 4.5 million homeowners have a leasehold property.

In the past, leasehold properties tended to be restricted to flats, but there has been a growing trend among developers to sell houses on a leasehold basis as well.

A report on the issue by the Housing, Communities and Local Government Committee warned that in some cases ground rents had doubled every 10 to 15 years.

At the same time, issues relating to leases can also lengthen the time taken to buy or sell a property and increase the costs involved.

Mark Hayward, chief policy adviser at Propertymark, said: “The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses.

“This new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”

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What’s changing?

Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent.

Leaseholders of flats can extend as often as they want at zero, or so-called peppercorn, ground rent for 90 years.

The new changes will mean that both leaseholders of flats and houses will be able to extend the lease on their home to a new standard term of 990 years and no longer pay any ground rent.

The government estimates the overhaul could save leaseholders thousands, and even tens of thousands, of pounds.

A Commonhold Council will also be set up to prepare homeowners and the market for the widespread take-up of commonhold as an alternative to leasehold.

A commonhold model allows homeowners to own their property on a freehold basis, with blocks of flats jointly owned and managed.

What else is happening?

An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.

The government is also abolishing certain other costs associated with buying a freehold or extending a lease, while it will set the calculation rates in a bid to ensure the process is fairer, cheaper and more transparent.

It has previously been announced that ground rents on new leases on homes will be restricted to zero.

This rule will now be extended to apply to all new retirement properties.

The legislation will be brought forward in two parts. The first part, which will set future ground rents to zero, will be introduced in the upcoming session of Parliament, with the other changes, such as those relating to commonhold, brought forward in due course.

Top three takeaways

  • Millions of homeowners with leasehold properties will be given a new right to extend their lease by up to 990 years 
  • Changes could see some households save tens of thousands of pounds
  • All new retirement homes will also be sold without a ground rent

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