What's in the Leasehold Reform Bill?

It’s been reported that historically leasehold property owners have been at the “mercy” of freeholders when it comes to things like service charges, ground rent increases and the cost of lease extensions.

For some this has led to financial issues and difficulties with maintenance, whereas for others, when a leasehold is well run, it can be a good option to buy and own.

Over the years, some freeholders have increased ground rents at an alarming rate, and if continued, could make some properties unaffordable for owners and very difficult or impossible to sell.

New build leasehold homes have been a particular issue, with some developers selling the freehold to a third party after all the homes have been sold, then the leasehold costs have suddenly been hiked for residents.

Another big problem for many leasehold owners has been short lease terms. Once a lease has less than 80 years remaining, it can be very difficult to get a mortgage, making the property hard to sell.

And if the freeholder either refuses to extend the lease or wants to charge an unreasonable amount for doing so, it can put property owners in a very difficult position.

For those and other reasons, leasehold reform has risen as a priority for government to change.

What steps have been taken so far?

• Over 20 years ago, ‘commonhold’ was introduced. This is where all the property owners share the freehold, so there’s no external freeholder, and the block is managed via an owners’ committee of the owners.
  
  However, since the legislation came into force, fewer than 20 commonhold developments have been established, so this is something the Government is keen to reinvigorate.
• More recently, On 30^th June 2022, the Leasehold Reform (Ground Rent) Act came into force. This restricts ground rent on new leases to a ‘peppercorn’ rent of zero. Where a lease is extended, the current ground rent continues until the end of the old lease period, then reverts to zero.
  
  Although this was a positive step, it didn’t address ground rent on existing leases.
• On 7^th November last year, the Leasehold and Freehold Reform Bill (for England and Wales) was announced in the Kings Speech, with King Charles saying it would, “make it cheaper and easier for leaseholders to purchase their freehold and tackle the exploitation of millions of homeowners through punitive service charges.”
• A consultation was opened on 9^th November, setting out a series of options for how the government could intervene to cap the ground rent leaseholders have to pay.
• The Bill was formally introduced in the House of Commons on 27^th November. It had its second reading on 11^th December, and twelve Committee Stage sittings took place between 16^th January and 1^st February this year.

What are the key changes proposed in the Leasehold Reform Bill?

• Making it cheaper and easier for leaseholders to extend the lease or buy the freehold
• Increasing the standard lease extension term from 90 to 990 years
• Scrapping the requirement for leaseholders to have owned their property for at least two years before they can benefit from the above changes
• Speeding up the buying and selling process by setting a maximum time for the freeholder to provide the necessary information when requested
• Giving leaseholders access to redress schemes so they can challenge poor practices, and removing the presumption for leaseholders to pay their freeholders’ legal costs
• Taking steps to ensure freeholders and developers cannot escape their liabilities to fund remediation work, under the Building Safety Act 2022
• Increasing the maximum amount of non-residential floorspace in a building at which leaseholders can buy their freehold or take over the building management, from 25% to 50%.

When might the Leasehold Reform Bill be passed?

In stark contrast to the Renters (Reform) Bill, which seems to be stuck in the system, the Leasehold Reform Bill seems to be progressing fairly quickly.

Meanwhile, feedback on the consultation about a ground rent cap, which closed on 17^th January, is currently being analysed.

So, it is possible that it could be passed in the next few months. Once Royal Assent has been granted, a timetable will then be laid out for the implementation of changes.

That said, making a prediction about timings for this Bill is tricky because of the uncertainty about exactly when the General Election will be held.

Although we know it has to take place before 28^th January 2025, we have no idea yet whether it will be this spring, summer or autumn.

If you already have a leasehold property, or you’re thinking of investing in one, our lettings experts are here to help – you can get in touch with your local branch via phone or email, or simply call into the branch.

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