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On the 7th of November, King Charles III announced that a new Leasehold and Freehold Bill will be one of the government's priorities for the year ahead. The aim of this bill is to increase the number of freehold properties, while also making it easier for leasehold homeowners to extend their leases. Abolishing escalating leasehold charges is also expected to be included as part of a bill to reform the leasehold system.

Below we'll look at the difference between freehold and leasehold properties, and what the key takeaways from the announcement are.


What Is a Leasehold and a Freehold Property?

If you buy a freehold property, then you will be buying both the building and the land it sits on, which you will then own outright and in perpetuity.

If you buy a leasehold property, you are buying the property and the right to live in it for a fixed number of years. The landlord will retain the freehold and at the expiry of the lease, the property can return to the landlord.

This means that during your ownership, you will need to abide by the terms of the lease, which could include restrictions on subletting or making alterations. Additionally, the lease will normally require the owner to pay annual ground rent and a service charge to the landlord or their appointed management company.


Key Points to Take Away

New homes

In the King’s Speech, he announced that the Conservatives have committed themselves to ensuring that all new houses in England and Wales will have to be sold as freehold properties. However, this law will not extend to new flats, which can remain leasehold under the current plans.

Ground Rent

Escalating ground rents have recently been causing a lot of trouble for leaseholders when it comes to selling or remortgaging their properties. Many mortgage lenders have been refusing to grant a loan where the rent could potentially exceed £250.00 per annum (or £1,000.00 in central London).

The new bill intends to cap all ground rents on existing leasehold properties to a “peppercorn” rate, which means no monetary value. This comes after the Leasehold Reform (Ground Rent) Act 2022 which already set the ground rent to a peppercorn for all new leases created after 30 June 2022.

Capping the ground rent to a peppercorn rate should make selling or remortgaging your property a much simpler and quicker process.

Extending Your Lease

Many mortgage lenders will refuse to grant a loan on a leasehold property where there is less than 85 years left on the lease. Under UK law, leaseholders have the right to extend the lease for an additional 90 years in exchange for a premium, provided that they have owned the property for at least two years. This is carried out via a formal application process with the landlord.

It is advised that the new bill will increase the standard lease extension term from 90 years to 990 years for both houses and flats. The requirement for leaseholders to have owned the property for two years before extending the lease will also be removed.


Get More Advice from Howells

Like many homeowners, we shall watch the coming year with great interest as to how and when these measures intend to take place.

If you do require advice on how this bill could affect you, or for any other property related query, then please get in touch with our property lawyers today. At Howells Solicitors, we have a team of specialist experts who can advise on all aspects of freehold and leasehold properties.

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