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Leasehold Reforms – The Biggest Shake up Since 2002

Leasehold Reforms – The Biggest Shake up Since 2002

A matter that has been discussed for some time now but finally in January 2021 the reforms where introduced.

This will affect around 4.7 million leasehold homes in England and Wales.

The headline change is that leaseholders of both houses and flats are now able to extend their leases by 990 years at a peppercorn ground rent.

Whilst the changes will not come into force until next year, they are long overdue and welcomed.

The benefits of the reform

A short lease will affect the value of the property and whether it is saleable and mortgageable.

Whether a lender is prepared to lend on a short lease will vary between lenders, the median length of a lease is 60 years left at the commencement of the mortgage term and 59% of lenders will accept a lease with at least 60 years left to run although 41% of lenders require a longer lease for security.

The current position gives a leaseholder a statutory right to extend their lease after two years of ownership and subject to paying the freeholders reasonable costs. What is deemed reasonable reverts to case law and not legislation and therefore can be a costly exercise.

The lease extension process increases in cost once the lease has less than 80 years left of the term to run.

There is also a limitation on the length of extension that the freeholder is obliged to grant, 90 years in the case of leasehold flats, and only 50 years for leasehold houses.

Increasing ground rents and aggressive rent reviews

Grounds rents have been the cause of many discussions of recent times. With the exposure of freeholders who grant leases of houses with escalating ground rents that can turn into many thousands of pounds over the years.

The reform will allow leaseholders to effectively buy out the remaining ground rent obligations and negate any rising ground rent escalation clauses.

In most cases lenders are not prepared to lend on leasehold properties with aggressive rent reviews and freeholders have in part been forced to consider varying leases that have already been granted to avoid the negative press attached to this. this can take time and stress, as this issue often only comes to light at the point of sale or re-mortgaging in both cases time is of the essence.


The premium for extending leases will be based on an online calculator which is thought to ensure that any premium is calculated on a fairer basis and more affordable to leaseholders who often agree on informal lease extensions with terms that are less favourable just to save on the premium payable.

The saving can be short lived when balanced with the other terms agreed.

Other recommendations

Currently leaseholders of flats have a right to buy the freehold interest of the building this has to be carried out collectively and at least half of the leaseholders need to participate. This process can be hindered when the minimum number of leaseholders do not wish to participate.

The new recommendation is that in this case the freeholder will be forced to 'leaseback' those flats of the leaseholders that do not wish to participate so the premium payable is less.

This is the starting point and more changes are to follow, is the balance finally tipping the other way?

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