News & Insights

Is the Ministry of Housing’s Latest Announcement Regarding Leasehold Reform Actually Harming Leaseholders (At Least in the Short Term)?

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Rob Denman, Principal Associate & Head of Real Estate at JB Leitch, comments on the Government’s recent announcements on leasehold reform…

On 7th January 2021 the Ministry of Housing, Communities and Local Government, via Robert Jenrick (the Housing Secretary), confirmed that they would be giving all leaseholders the right to extend their lease by a maximum of 990 years at a zero ground rent. This announcement was the Government accepting part of the recommendations on leasehold reform put forward by the Law Commission in their reports from January 2020 and July 2020.

Existing Rights

At present the right already exists for leaseholders of flats (providing they meet the qualifying criteria) to extend their lease for 90 years in addition to the unexpired term at a peppercorn ground rent. Leaseholders of houses (providing they meet the qualifying criteria) can also extend their leases by 50 years at a modern ground rent. Leaseholders of houses (providing they meet the qualifying criteria) also have the right to purchase their freehold.

Lack of Substantive Detail

Although, on the face of it, this announcement appears to be good news for leaseholders it lacks any detail other than the new lease being for 990 years at a nil ground rent. As a rather mischievous aside it would be interesting to see how many leasehold properties that exist now will be in existence in 990 years’ time!

There are no timescales confirmed for this reform other than “legislation will be brought forward in the upcoming session of Parliament”. Even more importantly there is no confirmation as to how the premium for these new forms of lease extension will be calculated. The Government’s announcement simply confirmed that “an online calculator will be introduced”. The Law Commission’s paper from January 2020 gave the Government three options to calculate the premiums for lease extensions and the summary concluded stating “it is now for Government to decide which of the options to pursue”. Given the lack of detail on this point it does not appear that the Government have yet decided which option to pursue despite the options being put to them 12 months ago. Detail on this point is critical here as it the price payable that is the crucial issue for leaseholders and freeholders alike.

Potential impact on the Housing Market

Throughout the Covid 19 pandemic the Government have been keen wherever possible to keep the housing market buoyant. Estate Agents are free to operate in the latest lockdown and a Stamp Duty Land Tax holiday has been in place since July 2020. The holiday expires on 31st March 2021.

This latest leasehold reform statement may significantly impact the current housing market to the detriment of existing and new leaseholders. Anyone who saw last week’s statement on leasehold reform may be forgiven for thinking this reform was either already in place or would come in to law in the short term. That is simply not the case and any such legislation (particularly in the current climate with more pressing issues) is unlikely to become law for at least 12 months if not more. Particularly when you factor in that the Government appears yet to have decided on the key question of the valuation options.

There are an estimated 4.5 million leasehold properties in England and Wales so any sale and purchase chain of transactions is likely to include a number of leasehold properties. This latest statement is therefore likely to have cast doubt in the minds of some existing leaseholders as well as new ones on how to proceed with buying and selling leasehold property. If lease extensions are required now to enable property sales should they proceed under the old regime or wait until the new one is in place? Would a potential leaseholder be happy with a new lease that is for only for a term of 90 years plus the current unexpired term as opposed to a 990 year lease? Why would a leaseholder extend their lease now if it is likely to be cheaper in the future? If so what impact will this potential doubt and indecision have on existing chains of transactions and would some collapse because of this?

Impact of Pension Funds and Investments

I have made this point several times previously but it is still a pertinent one. Like it or not, most people are invested in ground rent income in one way or another through their pensions. Ground rent investments have proved very popular for pension funds as they offer steady returns with a low risk profile. If this asset class ceased to exist through this proposed reform it would likely have a significant impact on the value of such investments and pension funds would have to source an alternative asset class that mirrored these current low risk returns. The lack of detail regarding the premium calculation and timescale of implementation may have an adverse effect on the value of pension funds and investments within which we are all stakeholders.


Uncertainty is the enemy of any market and this Government statement with its lack of detail, as detailed above, may actually do more harm than good in the short term for both leaseholders and freeholders.

As many have already commented, it may have made more sense for the Government to comment further on leasehold reform once they had made the key decisions on how premiums would be calculated and the intended timescale of implementation. Rhetoric does not benefit anyone. Well considered, detailed and clear messaging on leasehold reform is what is needed for all sectors of leasehold property otherwise the law of unintended consequences will continue to apply.

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