Leasehold reform formally confirmed as a Bill
On 7th November 2023, the King’s Speech marked the opening of a new session of Parliament. In his first address of this nature, King Charles III announced the Government’s key priorities for the year ahead and with a General Election expected within the next 12 months, the contents were hotly anticipated.
The property industry tuned in to hear where the Government stood on two Bills – the Renters’ Reform Bill and the Leasehold Bill. As a reminder, a Bill is when a motion to change the law is proposed, discussed and agreed by both the House of Commons and the House of Lords, before being given Royal Assent and becoming legally binding.
Of late, much focus has been on the Renters’ Reform Bill, with a key announcement made at the end of October. As a reminder, the Government’s planned ban on ‘no fault’ Section 21 evictions has been indefinitely delayed until the court system has been reformed.
The Renters’ Reform Bill was granted a special ‘carry over’ motion, which allows this Bill to progress into a new session of Parliament. The King did not make any further comment on rental reforms, and no timelines for change were given.
Now on to leaseholds – a matter that is of great interest to those who own or rent a leasehold property in England, as well as to freeholders and housebuilders.
A pledge to reform the leasehold system was first announced in The Housing White Paper in 2017 and in January 2021, the Government announced that legislation would be introduced to set future ground rents to zero. Subsequently, the Leasehold Reform (Ground Rent) Act 2022 came into force on 30th June 2022, applicable to new lease agreements created on or after that date.
King Charles III confirmed that a Leasehold and Freehold Reform Bill will be introduced to further reduce the impact of leases in England. The Bill’s key features will include:
- Making it easier, cheaper and simpler for a leaseholder to buy the freehold of a property or to extend their lease.
- Reducing how much a leaseholder will pay in ground rent, achieved by capping costs at 0.1% of the freehold value (a ‘peppercorn’ amount).
- Amending ownership requirements for leaseholders, such as the requirement to own a property for two years before requesting a lease extension or a lease purchase.
- Banning leaseholds for newly built houses in England – but not for flats.
- Lengthening the standard lease extension term from 90 years to 990 years for houses and flats.
- Insisting on transparency over leaseholders’ service charges.
- Scrapping buildings insurance commissions for managing agents, landlords and freeholders, and replacing them with transparent admin fees.
- Giving leaseholders with complaints better access to redress schemes.
- Giving freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders.
- Enabling leaseholders, where they already have a long lease, to buy out the ground rent without having to extend the lease term.
- Ensuring freeholders and developers are unable to avoid their liabilities to fund building remediation work.
- Permitting leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (an increase from 25%).
- Introducing standard mandatory forms for leasehold information.
What’s happening in Wales?
As a self-governed nation, Wales is following a similar but slightly different path to England. In 2018, the Welsh Government joined the Law Commission’s leasehold reform project and a Residential Leasehold Reform document was published in 2019. The Leasehold Reform (Ground Rent) Act 2022 also applies in Wales but additional reform proposals include:
Restricting future ground rents to zero for leasehold properties in the third phase of Help to Buy-Wales.
Paving the way for a permanent restriction of future ground rents to zero.
Seeking the UK Government’s agreement to officials working together “to explore a joint approach to legislation enacting the Law Commission’s recommendations for leasehold reform for England and Wales.”
Is the leasehold system different in Scotland?
Scotland, as a devolved nation, has a different approach and doesn’t have a clear cut freeholder/leaseholder demarcation. Instead, there is a residential-led system that can be likened to commonhold. There are no current motions to reform or replace Scotland’s ownership model.
How will reforms affect you?
We understand some of the terminology involved in the suggested Leasehold Bill is confusing. If you’re finding it hard to understand how any changes may affect you, please do get in touch. In the meantime, we’ll be monitoring the Bill as it passes through the Houses of Parliament, informing you of timescales and amendments.
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