Cost of leasehold reforms rises to £4bn after government updates impact assessment

The government has revised up the total cost of leasehold legislation reforms from £3.5bn to £4bn following technical corrections. 

The increase in the estimated cost of the Leasehold and Freehold Reform Act 2024 is mainly due to adjustments in financial modelling to make estimates more accurate, which were published this week by the Ministry of Housing, Communities and Local Government (MHCLG) in an addendum to the Act’s impact assessment.

The legislation aims to improve the rights of leaseholders in England and Wales by making it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges.

As laid out in the updated impact assessment, there has been a technical correction to how the government works out ground rent and applies discounts over time by tweaking the way the 0.1% ground rent cap interacts with other calculations.

This has increased the overall financial impact of the ground rent cap by £563m, from £588m over the 10-year appraisal period to £1.15bn.

Since ground rent cap calculations have been corrected, marriage value reform impacts have reduced from £1.91bn to £1.86bn.

This net change represents a higher estimated cost to freeholders of £513m, while leaseholders are predicted to benefit by £513m more over the ten years.

The total asset value across properties affected by marriage value reforms dropped from £7.1bn to £6.9bn for England, while the average worth of short leases was adjusted down from £18,500 to £18,000.

Marriage value was a premium paid by leaseholders to extend leases when they had fewer than 80 years remaining.

As well as impacting individual reforms, technical changes mean that businesses could be paying higher net direct costs for the enacting legislation, from £159m, to £191m.

The MHCLG also reported that the complete reform package has total benefits of £4.1bn over the appraisal period, most of which are received by leaseholders, while freeholders will feel the majority of the £4bn costs.

In January of this year, the first of the Act’s reforms was phased in, meaning leaseholders will no longer need to have owned a property for two years in order to begin to extend their lease or apply for a collective enfranchisement process.

The next stage of enforcement involves a review of key proposals, such as the removal of marriage value from enfranchisement valuations, which are due for hearings in July 2025.