Leasehold reform on the horizon

Leasehold property ownership is almost unique to the UK. When you buy a leasehold property, you buy the right to own the property for a set number of years. In contrast, a freehold property is owned outright.

This unfamiliar form of ownership has always been a challenging concept for international buyers.

Furthermore, given that some of the most attractive parts of central London are controlled by landed estates (for example: Grosvenor Estate, which owns a large part of Belgravia, and Cadogan Estate, which owns parts of Knightsbridge and Chelsea), if you want to own an apartment in these areas, you have to get your head around the concept.

Assessing the market value of a leasehold property depends not only on the length remaining on the existing lease and its underlying terms but also on the possibility and cost of enfranchisement, which means extending the length of the lease or purchasing the freehold outright.

Sounds complicated. And expensive.

But wait, because now it gets interesting…

Latest developments look promising

At the beginning of the year, the UK Government made two announcements—Leasehold Enfranchisement: Government Statement (7 January 2021) and Parliamentary Statement (11 January 2021)—which set out their initial thinking on the proposals for leasehold reform with the aim:

to reduce the cost of making an enfranchisement claim
to make enfranchisement rights available to more leaseholders in more types of property and
to make the enfranchisement process less complicated.

It appears that the intention is to streamline the process, to increase transparency and fairness, and to reduce cost for leaseholders.

In short, this is good news for leaseholders. Particular points in the proposals relevant to owners and buyers of leasehold flats in central London are that it will be possible to extend the lease by 990 years instead of 90, and the calculation of the cost will be simplified.

For now, this should all be interpreted as a ‘statement of intent.’ Nevertheless, the proposals will make it easier and cheaper for leasehold owners to extend their leases, and the new extension will be for a much longer period than under the existing regime.

Understandably, there has been plenty of commentary from legal experts (see links below for a couple of examples). And, as you can imagine, many vested interests and organisations are studying the impact on, and represent the interests of, the various stakeholders.

No specific legislation is yet on the table; it is unclear when exactly the proposed changes will be implemented and their impact. As in any major reform movement, there will be a lot of back and forth to hammer out the specifics.

Preparing for the changes

Without 100 percent clarity, in central London international buyers may be confused and, as a result, hesitate to take decisions. That doesn’t mean you can’t be proactive.

In any and all cases, it’s important to:

Understand that, despite the stated intention and surrounding commentary, nothing is written in stone yet so the process isn’t straightforward.
Create, if you haven’t already, a strategic plan for your assets.
Take professional advice. There are some real geeks (like us) tracking these developments in Westminster and in the market so you don’t have to!

At Longview Advisors we try to keep property in perspective, so we’ll update our outlook as new developments arise.