Leasehold changes explained: Would Gove’s plan make it easier and cheaper to buy freehold?

Michael Gove has announced that the Government is planning to scrap leasehold laws that prevent some flat owners from buying their freehold of their properties.

The Secretary of State for Levelling Up, Housing and Communities said the Government will also make it easier for leaseholders of flats to bring their buildings into a common ownership model. 

This would mean they avoid paying costly ground rents and management fees on their properties.

We look at what is being proposed and what it could mean for leasehold homeowners. 

Consultation: Michael Gove, the Levelling Up Secretary, has proposed various changes which could make it easier for leasehold property owners to become freeholders

What are leasehold and freehold properties? 

In the UK, homes are bought either freehold or leasehold. When you buy a property freehold it means that you own the property and the land it is built on indefinitely. This is the most common way of buying a house in the UK.

However, with a leasehold purchase you only own the property for a set period, but not the land it is build on. The landowner remains as the freeholder. This arrangement is most common with flats, but you can get houses on a leasehold basis.

The lease you buy is often long – usually between 99 and 999 years. Banks will usually lend mortgages as long as the lease has 75 years remaining, but once the lease goes below around 70 years it can be harder to sell the property. 

Freeholders may also impose restrictions on what leasehold owners can do to the property.

And leaseholders pay ground rent for the land, plus service charges to help cover the freeholder’s responsibility for shared areas such as corridors or a garden.

What changes has Michael Gove proposed?

Speaking on television on Sunday, Gove said that leasehold is ‘unfair’ and that  ‘in crude terms, if you buy a flat that should be yours.’

‘You shouldn’t be on the hook for charges that managing agents and other people can land you with which are gouging,’ he added.

He has launched a consultation on changes which, if approved, would mean millions of families living in leasehold homes could be handed greater power to buy their property outright before the next election.

Other changes could include no longer requiring leaseholders to pay for costly repairs such as unsafe cladding, as the burden would shift to landlords.

The matter has been an issue of contention in the wake of the tragic Grenfell Tower fire in 2017. 

It is unclear exactly how the new regime would operate but changes would impact almost five million homes before the next general election. 

Gove warned that the changes require legislation, adding, ‘because you’ve got a tangle of deals going back hundreds of years – unstitching all of that is difficult – but the fundamental thing is that leasehold is an unfair form of property ownership. It is an outdated feudal system that needs to go.’

Can leaseholders buy the freehold currently? 

The Government banned new-build homes being sold as leasehold properties in 2019, with the change coming into effect in June 2022. 

Existing homes and new build flats can currently still be sold as leasehold. However, in recent years the option to become a ‘share of freehold owner’ has become much easier. 

This allows leaseholders to own their flats outright, although it works differently to owning a house freehold.

Normally, all the owners of leasehold flats in a building club together to buy the freehold from the freeholder, and then each own a share of it. 

Changes: Michael Gove, Secretary of State in the Department for Levelling Up, Housing and Communities has launched a consultation on the leasehold system

Changes: Michael Gove, Secretary of State in the Department for Levelling Up, Housing and Communities has launched a consultation on the leasehold system

They still own their properties leasehold, but they also own share of the building and the land it is on.

As the freeholders they can grant new leases of long lengths, often the maximum 999 years, with minimal ‘peppercorn’ ground rents.

This is preferable for technical reasons to owning a flat freehold, which causes problems with insurance companies and mortgage lenders.

What other leasehold changes are being looked at?

The proposals would also give leaseholders the option to buy out the ground rent without having to extend the lease term, making the process of getting the freehold cheaper and easier. 

They could also make it easier for leaseholders on flats to come together and buy the freehold as commonhold.

Commonhold is a type of freehold in a multiple occupancy building where there is shared responsibility for common services.

Earlier this month the Department for Levelling Up, Housing and Communities launched a consultation giving homeowners and the housing industry a chance to air their views on the leasehold system. 

Leasehold minister, Lord Stephen Greenhalgh said: ‘The current leasehold system is outdated, unbalanced and broken and we are determined to fix it. Our proposals aim to rebalance power and should see more leaseholders than ever before owning the full rights to their homes. 

‘This comes on top of our new approach building safety, which includes decisive action to protect leaseholders’ 

The Homeowners Association has said it would also like to see the way we value the cost of extending a leasehold or buying a freehold to be simplified as part of the reforms.