Government revises up total cost of leasehold reforms to £4bn

Key changes include removing the need for leaseholders to pay ‘marriage value’ (a fee reflecting the increase in the value of the property, as compensation to the freeholder) and eliminating the two-year ownership requirement for lease extensions.

It is also designed to increase the standard lease extension term to 990 years for both houses and flats.

The Leasehold and Freehold Reform Act 2024 was passed by the previous Conservative government in May 2024, but is for the most part not yet in force. 

The Labour government has committed to leasehold reform, with a draft commonhold bill expected to be published later this year. 

Meanwhile, it has updated the original impact assessment by the Tories with “corrections” relating to “the uprating and discounting of the ground rent term” and taking the impact of this change into marriage value calculations.

Following this correction, the estimate of the 0.1% ground rent cap impact increases from £588m over the 10-year appraisal period to £1.1bn.

This includes the interaction with marriage value, which increased from £62m to £100m over the 10-year appraisal period.

Marriage value reforms have been reduced £49m over the same period to £1.86bn. The asset value impacts resulting from marriage value reforms decreased from £7.1bn to £6.9bn for England.

Average estimates per short lease reduced from £18,500 per short lease in England and Wales to £18,000. Meanwhile, the estimated gain relative to property value reduced from approximately 7-8% to 6-7%.

While total costs increased from £3.5bn to £4bn, total benefits also increased from £3.6bn to £4.1bn.

Most of the £4bn costs will be felt by freeholders, while the average annual cost divided by the estimated number of freeholders is estimated to be £948.

A judicial review on the policies addressed in the corrected impact assessment is being heard at the High Court in July after an assortment of freeholders were granted permission in January to challenge the threat to their income streams posed by the bill.

Harry Scoffin, founder of campaign group Free Leaseholders, said: “Leasehold is anti-growth. The widespread use of this extractive landlord-controlled system in England and Wales makes us outliers in the Anglosphere for flat living.

“Ending leasehold will empower people to take rightful control of their homes, money and lives. The subtext to these technical corrections from the government is the judicial review being waged by Big Freeholders to keep their economically harmful business model on life support.

“The impact assessment changes don’t give us the full picture. For Labour to honour the objective of the act – legislation they supported from opposition – they must set capitalisation and deferment rates in a way that encourages leaseholders to extend their lease or acquire the freehold at the lowest possible cost.

“There are also vital secondary benefits to these reforms. By driving out rentier freeholders from people’s homes, we can finally densify our cities and restore consumer confidence in the flats market. These reforms are undoubtedly in the public interest. The government must hold their nerve against the deep-pocketed freeholder lobby to deliver them.”

The government has been contacted to comment on the changes.