November 28, 2023
The agenda includes reform of the property market through the introduction of the Leasehold and Freehold Bill. Whilst most of the changes relate to the residential property market, there are some proposed changes that those in the commercial property market should be aware of. Our commercial property team set these out below:
Mixed use buildings
Mixed use buildings are those which serve multiple purposes, commercial and residential. The Leasehold and Freehold Bill will allow leaseholders in mixed use buildings with up to 50% commercial use to either buy their freehold or take over the management of the building. This is known as collective enfranchisement. Under the current legislation, buildings where the internal floor area is occupied (or intended to be occupied) for non-residential purposes exceeds 25% do not qualify for collective enfranchisement. The proposed change would therefore allow more leaseholders in mixed use buildings to take over the management of the building. Whilst this change will be welcomed by tenants it is something that landlords will need to be wary of.
Lease extensions
Currently, in order to have the right to apply to extend a lease, a leaseholder has to have owned a property for two years. The proposal is that this requirement is removed and that the standard lease term extension is increased from 90 to 990 years for both houses and flats. This means that landlords are in the short term likely to receive more applications for lease extensions, but with the extension of the term to 990 years, in the long run there will need to be fewer.
New leasehold interests
The bill seeks to ban the creation of new leasehold houses except in exceptional circumstances. However, this does not expressly include flats, meaning developers will still be able to grant leases of flats, which will be welcome news to many developers.
Ground rent consultation
The issue of periodically increasing ground rents has been a hot topic for the last few years. Ground rents on new long residential leases have recently been capped to a very low, nominal rent through the Leasehold Reform (Ground Rent) Act 2022. The proposed consultation will focus on whether ground rent should also be capped on existing residential leases. Whilst a cap on ground rents on existing leases would be good news for residential leaseholders, the change may have negative consequences for landlords who hold ground rent interests in properties by restricting the income received from these interests.
If you have any queries relating to the above, or would like to speak to a commercial property expert, please contact Oliver Morris, on 02920 829 123 or omorris@darwingray.com for a free initial chat to see how we can help you.
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