Leasehold changes explained: Would Gove’s plan make it easier and cheaper to buy freehold?

Michael Gove has announced that the government intends to abolish leasehold laws that prevent some flat owners from buying out of their properties.

The Secretary of State for Leveling Up, Housing and Communities said the government will also make it easier for flat tenants to move their buildings into a common ownership model.

This would mean that they would not have to pay expensive leaseholds and management fees for their properties.

We look at what is proposed and what it can mean for leaseholders.

What are leasehold and property rights?

In the United Kingdom, homes are purchased as owner-occupied or leasehold properties. When you buy a property, it means that you own the property and the land on which it is built indefinitely. This is the most common way to buy a house in the UK.

When buying on a leasehold basis, however, you only own the house for a certain period of time, but not the land on which it is built. The landowner remains the leaseholder. This arrangement is most common with flats, but you can get houses on a leasehold basis.

The lease you buy is often long – usually between 99 and 999 years. Banks will usually provide mortgages as long as the lease has 75 more years to run, but once the lease falls below 70 years, it may be more difficult to sell the property.

Freeholders can also place restrictions on what leaseholders can do with the property.

And tenants pay leasehold for the land, plus service charges to cover the owner’s responsibility for common areas, such as hallways or a garden.

What changes has Michael Gove proposed?

Gove said on television on Sunday that leaseholds are “unfair” and that “in broad terms, if you buy a flat, it should be yours.”

“You shouldn’t be ridiculed for allegations that management agents and other people may catch you making fun of you,” he added.

He has launched a consultation on changes that, if approved, would mean that millions of families living in leasehold properties would have more power to buy their property outright before the next election.

Other changes could include leaseholders no longer having to pay for costly repairs, such as unsafe siding, as the burden would shift to landlords.

The issue was a point of contention in the wake of the tragic 2017 Grenfell Tower fire.

In his statement to parliament, Gove told the House of Commons that ‘leaseholders no longer need to fear financial ruin in order to secure their homes’.

He also revealed plans to crack down on property managers, landlords and owners who receive commissions and “other such payments” from insurers and brokers at the expense of tenants and tenants. Instead, he said he will introduce “more transparent fees” and “will not allow people to hide charges in obscure invoices.”

And he has pledged to ban landlords from recovering their legal fees from tenants when they lose service fee disputes.

It’s unclear exactly how the new regime would work, but changes would affect nearly five million households before the next general election.

Gove warned that the changes would require legislation, adding: ‘because you have a jumble of deals going back hundreds of years – it’s hard to untie all that – but the fundamental thing is that leasehold is an unfair form of ownership . It’s an outdated feudal system that needs to disappear.’

Can leaseholders currently buy the land?

In 2019, the government banned the sale of new-build homes as long leases, with effect from June 2022.

Existing homes and new-build homes can currently still be sold on a leasehold basis. In recent years, however, the opportunity to become a ‘share or freehold owner’ has become much easier.

This allows leaseholders to own their apartment outright, although it works differently than owning a home owned property.

Normally, all owners of leasehold flats in a building club together buy the land from the landowner, and then each own a part of it.

They still own their leasehold property, but they also have a stake in the building and the land on which it stands.

As leaseholders, they can grant new long-term leases, often for a maximum of 999 years, with minimum ground rents.

This is preferable to owning an apartment for technical reasons, which causes problems with insurance companies and mortgage lenders.

What other leasehold changes are being considered?

The proposals would also allow leaseholders to buy out the leasehold without having to extend the lease term, making the process of acquiring ownership cheaper and easier.

They could also make it easier for flat tenants to come together and buy the land as common property.

Commonwealth is a form of ownership in a multi-family building where there is shared responsibility for common facilities.

Earlier this month, the Department of Urban Planning, Housing and Neighborhoods started a consultation in which homeowners and the housing sector could express their views on the leasehold system.

Lord Stephen Greenhalgh, Minister of Leases, said: ‘The current system of leaseholds is outdated, unbalanced and broken and we are determined to fix it. Our proposals aim to rebalance power and should see more tenants own full rights to their homes than ever before.

‘This is in addition to our new approach to building safety, which includes decisive action to protect leaseholders’

The Homeowners Association has also indicated that it would like to see the way we value the cost of extending a leasehold or buying a property simplified as part of the reforms.