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The Government has now stated their goals for leasehold reform. There is an obvious focus on new-build properties implicit in the proposed measures, which detractors warn may create a two-tier leasehold system with the worst-affected, existing leaseholders struggling to sell their properties as a result. What might the Government offer these home-owners?

“The Government will prioritise solutions for lessees of houses...The Government will consult on introducing a prescribed formula that provides fair compensation to the landlord, whilst also helping leaseholders avoid incurring additional court costs...The Government will aim to bring forward solutions by summer recess 2018 and new legislation when time allows.”

There are many who hold out hope, particularly after the failed Sloane Stanley Estate v Mundy appeal, that the planned reforms may affect freehold and lease-extension valuations - reducing the premiums payable by leaseholders. We do not, however, share this hope.

The principal rationale behind our negative opinion is how widespread investment in ground rents has become. This issue is discussed in a recent article by the Financial Times - An Englishman’s home can be a fund manager’s castle. Any legislation to reduce premiums for lease-extension or freehold purchase would involve a Government led write-down of an asset class heavily owned by The Crown, Church, aristocracy, charities, local authorities and, perhaps most importantly, pension funds. A decade of low interest rates have driven many organisations into ground rent investments that they would previously have considered as relatively unattractive. The Government will hence find itself severely restricted in what it can do on value (as did the Court of Appeal with the Sloane Stanley Estate v Mundy appeal).

The Government has a clearly stated priority for leasehold house reform. What the reforms will likely do is hence update the Leasehold Reform Act 1967 (as amended) to get rid of archaic valuation procedures for leasehold houses such as the reliance on domestic rateable values (discontinued in 1990 and now rarely available). Flats, particularly existing leasehold flats, are a lower priority. At most, in our opinion, there is likely to be some reform of procedure in favour of leaseholders and/or closing loopholes for common abuses. Any leaseholder savings will hence likely come from reduced, procedural legal costs rather than premium reduction.

It is additionally worth noting that enacting any reforms in statute will likely take years, not months – particularly against the backdrop of an increasingly chaotic Brexit process.

Should leaseholders wait for the reforms before extending leases or buying the freehold? We would argue that this could be a bad idea for any leases with less than 80 years remaining on which Marriage Value would be due. With such leases, a delay of years in taking action could significantly increase the premium payable.

In our view, the question on whether to delay is best answered by asking whether the industry expects significant falls in house prices in the near future. Such falls would decrease the premium payable for lease extension or freehold purchase. Currently, however, whilst RICS predict a degree of price stagnation, they do not see wholesale reductions.

In summary, it is perhaps pragmatic to hope for the best with Government leasehold reforms, but inevitably plan for the worst.

Disclaimer: This article reflects opinion only and should not be considered as legal or investment advice of any kind. Professional assistance should be sought before making any investment or legal decisions.