Labour stated that they intend abolish leaseholds within 100 days of achieving power.
The Conservatives had considered this, but it was reported that this idea had been dropped – see report.
The problem is that it is complicated. It is a good idea for existing leaseholders, as they lose all their requirements to pay ground rent, etc, but bad news for freeholders, because they lose the ground rent, and most importantly, the marriage value of the lease.
What is Marriage Value?
Marriage value is the increase in the value of a property having a long lease, versus a short lease. This is because a short lease can be difficult to borrow on, and is thus unpopular. Unpopular equates to a lower value.
Take an easy calculation:
If a property should be worth £100,000, but is only currently worth £70,000 because of the short lease. To grant a long lease, the freeholder will normally charge 50% of the increase in value, plus an administration charge – normally around £5,000.
So, in the example above, it will cost the leaseholder £5,000 plus half the £70,000 – Total = £5,000 + £35,000.
As can be imagined, this example is very conservative, and in the real world marriage value can be many thousands of pounds, if not millions.
Many landlords/companies earn their living by trading in leaseholds because of this marriage value. If the Government were to abolish them, they would have to compensate these freeholders – this would be an enormous bill.