13 February 2025
By Simon Tye, LEASE Adviser
Most leaseholders will be aware of the publicity and news items surrounding leasehold reform in the past few years. In particular, the Leasehold and Freehold Reform Act 2024, which was passed by Parliament in May of last year.
This article will look, briefly, at how the reforms in the above Act and other recent legislation affect shared ownership leaseholders.
It is important to note that, although the Act has been passed, many of the provisions in the Act have not yet commenced and will not do so until further consultation and secondary legislation is passed. Some of the Act’s provisions will commence this year, but others, particularly on lease extension, are likely to take longer.
Lease extension
Currently, shared ownership leaseholders do not have a legal right to extend their leases of houses or flats unless they have “staircased” up to 100% ownership. Many registered housing providers will still agree to extend a lease informally, but there are no set terms as to how and when they will do this.
Under the new law, shared ownership leaseholders of flats and houses will have the legal right to extend their leases. There will no longer be a 2-year ownership requirement, and the right will be to extend the lease by adding 990 years to what is left on the existing lease.
For both ordinary and shared ownership leases the lease extension process will be simplified. In most cases, leaseholders will no longer have to pay the landlord’s costs of extending the lease, just their own legal costs.
Valuation for lease extension
At present, if a lease has dropped below 80 years this can substantially increase the cost of extending a lease as the leaseholder pays “marriage value”. This should be abolished once the new law commences. This will help leaseholders with low-length leases.
The reforms will also cap ground rent at 0.1% of the value of the property for the purposes of calculating the price.
At present, the price that a leaseholder pays to extend a lease is also based on rates negotiated between the two parties’ surveyors. Under the new law, these figures will be set by the government.
The government is due to consult on the rates to be set in the calculation this summer. Until this has finished and the new rates are set, we will not know how this will affect the cost of a lease extension.
Leasehold enfranchisement (buying the freehold)
Shared ownership leaseholders will still not have the right to buy the freehold of their house unless they have “staircased” up to 100% ownership.
Also, shared ownership leaseholders are not “qualifying tenants” for the purposes of collective enfranchisement. That is, collectively buying the freehold with other leaseholders.
Ground rent
Ground rent is not usually payable on a shared ownership lease until after the final staircasing. The lease may make provision for a ground rent to be payable once the leaseholder owns 100%.
As stated above, the Act will allow a leaseholder to extend the lease by 990 years at apeppercorn (i.e. zero) ground rent.
Shared ownership leaseholders of houses or flats with at least 150 years to run will have the right to “buy out” their ground rent without having to extend their lease at the same time. The right to a peppercorn rent only applies to any ground rent payable under the lease, not the rent paid on the landlord’s share (“the Specified Rent”).
New Leases
Ground rents have now been banned on all new leases granted on leasehold houses or flats since 30th June 2022, including any provisions in shared ownership leases (1st April 2023 for leasehold retirement homes. Ground rents have not been abolished on exiting leases.
Rent Payable on the Landlord’s Share (“Specified Rent”)
The specified rent is the amount you pay on the equity share retained by the landlord. This will vary depending on the percentage you acquired and any staircasing since first purchase. Specified rent is usually subject to periodic increases as set out in the lease.
If you signed your lease before 12 October 2023
The most your rent can go up by is the percentage increase in the Retail Prices Index (RPI) for the last 12 months plus 0.5%.
If you signed your lease on or after 12 October 2023
Check the terms of your lease to see how much your landlord can increase your rent by. It will be either:
the Retail Prices Index (RPI) plus up to 0.5%
the Consumer Prices Index (CPI) plus 1%
