Reform will slash the cost of lease adjustments
The value of central London’s great estates could be slashed by £5bn through a clause in the government’s leasehold reforms.
Research by FPDSavills and law firm Withers LLP shows that the government’s Commonhold and Leasehold Reform Act could cut the cost of extending a long lease with 80 years left on the clock by as much as 80%. The rule caps the amount required to extend the lease of a residence.
The report, Leasehold Reform: The impact in prime central London, states that the change will reduce the income from lease adjustments by billions as the value is effectively handed over to long leaseholders.
FPDSavills anticipates that most leaseholders will want to take advantage of the law to add value to their properties when their leases have around 90 years to run. Leases with less than 80 years left to run will not be affected by the legislation.
Richard Donnell, head of Savills’ residential research team, said: “This will affect around 250,000 properties in central London. We estimate that this will cost the major London estates between £3bn and £5bn over the next decade or so.”
The Act, which will be implemented from October, also introduced new laws to allow tenants to collectively buy the freehold of the property that they inhabit.
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Cost savings for leaseholders |
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How the law will affect the cost of lease extensions for leases with 80 years left |
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Current leasehold value |
Old price for lease extension |
New price for lease extension |
Potential saving |
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£250,000 |
£16,200 |
£4,300 |
£11,900 |
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£500,000 |
£31,500 |
£7,000 |
£24,500 |
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£750,000 |
£46,900 |
£9,500 |
£37,400 |
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£1m |
£62,300 |
£12,200 |
£50,100 |
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£2m |
£123,800 |
£22,800 |
£101,000 |
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£3m |
£185,200 |
£33,300 |
£151,900 |
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Source: FPDSavills |
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