New rules on leasehold homes came in this week, banning ground rents on new leases but a property expert warns this could create a two-tier system in the sales market.
Shilpa Mathuradas, head of property litigation at Osbornes Law, said the lack of reform for existing leasehold properties could make these homes harder to sell.
Mathuradas said: “While any reform of the antiquated leasehold system is to be welcomed this new legislation could well create a two-tier system in which older leaseholds become more difficult to sell.
“As the new law only applies to new leases, it leaves those already paying onerous ground rents or doubling rent clauses to suffer.
“It is crucial that the government sets out a timetable for the second stage of leasehold reform, including abolishing ‘marriage value’ and allowing homeowners to extend their leases with zero ground rent for 990 years, so that all leaseholders are freed from a system that is no longer fit for purpose.”
It comes as trade body The Association of Leasehold Enfranchisement Practitioners said it received an update from government on its intended programme of leasehold enfranchisement reform.
In a letter dated 13 June, Lord Greenhalgh, Minister of State at the Department for Levelling Up, Housing and Communities, reiterated the aim of making home ownership “cheaper, fairer and more secure” and advised that the government is committed to delivering the second phase of its two-part leasehold reform within this Parliament.
Lord Greenhalgh advised that the second phase of reform will focus on simplifying valuation, including the abolition of marriage value and introduction of prescribed rates for the calculation of market value.
An online calculator will also be introduced, with the general aim of ensuring “standardisation and fairness” during in valuation.
Mark Chick, director of ALEP, said: “Making the statutory lease extension term 990 years (rather than 90 years) in addition to the existing term can likely be dealt with by amendments to existing legislation, so there is a very good chance that new legislation to deal with this aspect will come before parliament ahead of the next election in May 2024.
“The proposed reforms would mean significant changes to the way that leasehold work is dealt with, particularly as regards valuation.
“It remains to be seen what the level of backing there may be in Parliament for such legislation, given that the reforms would involve a significant shift in economic benefit from freeholders to leaseholders.
“Indeed, it is interesting that Lord Greenhalgh’s letter refers to ensuring that sufficient compensation would be paid to landlords, no doubt to anticipate the possibility of a Human Rights Act challenge.
He said ALEP continues to engage with the government on leasehold and commonhold reform and anticipates a lively debate in the months ahead.