On 21st November 2024 the Minister of State for Housing and Planning Matthew Pennycook announced the Government’s plans for implementing legal reform.

Background to the announcement

Since the Leasehold and Freehold Reform Act 2024 was passed on the last day of the previous parliament there has been speculation as to when and how the reforms within the Act will be implemented.

In July 2024 the new Government committed to bringing in the leasehold reforms ‘quickly’ and since then there has been no firm proposals for the implementation of the Act.

Since then there have been seven legal challenges to the Act both in courts within the UK and in Strasbourg. The Government then challenged these seven legal challenges and proposed that as the Act was not yet operational the legal challenges were not relevant.

On October 2024 this challenge against the seven legal challenges was lost and seven legal challenges were given leave to proceed.

The seven challenges mainly deal with parts of the Act that would seriously impact freeholders including the changes to valuation methods proposed in the Act, the abolition of marriage value and the way ground rents are dealt with.

If the government loses these challenges they could be liable to pay compensation and many people in the industry speculated that the more controversial parts of the Act would not be implemented quickly as the Government has promised.

With the announcement made yesterday it appears that this speculation was correct. Many parts of the 2024 Act are not going to be implemented any time soon.

Here is a link to the full statement made by Matthew Pennycock

https://questions-statements.parliament.uk/written-statements/detail/2024-11-21/hcws244

What does the statement mean?

The Government is committed to bring in Leasehold Reform but has found that some aspects of the 2024 Act are flawed and will lead to unforeseen consequences. As predicted they are going to bring in parts of the Act as soon as possible and then seek further consultation on other parts of the act.

It appears that marriage value is not going to be abolished for some time.

The way that the premium to extend your lease or purchase your freehold is to be calculated is to be consulted on.

The announcement is not clear but it appears that the provision releasing leaseholders from the obligation to pay freeholder’s fees (in most circumstances) will not be implemented in the first round of implementation.

The Governments proposed timetable is discussed in the statement as follows:

Commitment to bring in reforms quickly  

‘As set out in the King’s Speech, it is therefore the government’s intention to act as quickly as possible to provide homeowners with greater rights, powers and protections over their homes by implementing its various provisions’.

‘However, we must balance speed with care if we are to ensure that the measures brought into force are to the lasting benefit of leaseholders and residential freeholders’.

Limited parts of the 2024 Act have already been implemented  

‘A number of the Act’s provisions came into force on 24 July relating variously to legal costs associated with the remediation of unsafe buildings.’

‘On 31 October, the government activated further building safety measures’.

Plans to bring in more of the proposed reforms

‘Commencing the remaining provisions in the Act will require an extensive programme of detailed secondary legislation.’

‘To our frustration, we will not be able to bring other important measures into force, including the new valuation process, until we have fixed the small number of specific but serious flaws in the 2024 Act through primary legislation. Switching on the Act in full will therefore take time, but it is important that we get it right if we are to avoid the mistakes made by the previous government.’

The Government has proposed the following timetable

‘With a view to effectively implementing the Act as quickly as possible, the government’s intended sequencing for bringing the provisions of the 2024 Act into force is as follows:’

2 Year rule to be abolished January 2025

‘We intend to commence the Act’s provision to remove the ‘2-year rule’ in January next year. This will mean that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold, giving more leaseholders control over their properties from the outset.

Right to manage rules altered early 2025

We will bring the Act’s right to manage provisions (expanding access, reforming its costs and voting rights) into force as a coherent package at the same time, in spring 2025, meaning more leaseholders in mixed-use buildings can take over management from their freeholders, and leaseholders making claims will, in most cases, no longer have to pay their freeholder’s costs.

The Government will then do the following:

Further consultation on the cost of insurance  

‘We will go out to consultation very shortly on the detail of the Act’s ban on buildings insurance remuneration such as commissions for landlords, property managing agents and freeholders being charged through the service charge and their replacement with transparent and fair fees.’

Consultation in 2025 on service charges and legal costs

‘Next year, we will look to consult on the Act’s provisions on service charges and on legal costs, bringing these measures into force as quickly as possible thereafter.’

Summer 2025 – Consultation on the valuation procedures

‘The Act includes measures that will make it cheaper for leaseholders to enfranchise – buy their freehold or extend their lease, giving them security over their property in the long term.

‘Next summer we will consult on the valuation rates used to calculate the cost of enfranchisement premiums.

Secondary Legislation will need to be passed – late 2025 or early 2026?  

Parliament will then need to approve the secondary legislation that sets out the detail, as well as fixing the Act’s serious flaws in further primary legislation, before implementing the package.’

Further reforms – estate charges

‘The government remain committed to protecting residential freeholders on private and mixed-tenure housing estates from unfair charges. Next year we will consult on implementing the Act’s new consumer protection provisions for the up to 1.75m homes that are subject to these charges, and bring these measures into force as quickly as possible thereafter.’

Further reforms of the leasehold system – and a final push to Commonhold

‘While we must fix the Leasehold and Freehold Reform Act and implement its provisions as soon as possible, we have always been clear that the Act does not go far enough. It overlooked a number of Law Commission recommendations relating to leasehold enfranchisement, enacted only eight relating to the right to manage and contained none relating to commonhold.’

Unaffordable ground rents

‘Moreover, it left untouched serious problems such as unregulated and unaffordable ground rents; the poor quality of service provided by some managing agents; the threat of forfeiture as a means of ensuring compliance with a lease agreement; and the prevalence of ‘fleecehold’ private and mixed-tenure housing estates.’

Commonhold

‘As part of our commitment to finally bring the feudal leasehold system to an end in this parliament, the government are determined to take action to address Law Commission recommendations omitted from the 2024 Act, to resolve a range of problems that legislation failed to grapple with, and to enact key pledges in our manifesto that it did not even engage with, such as making commonhold the default tenure.’

A new Draft Leasehold and Commonhold Reform Bill in this parliamentary session – by 2029

‘In the King’s Speech, the government made clear it would publish an ambitious new Draft Leasehold and Commonhold Reform Bill in this parliamentary session that would be subject to broad consultation and additional parliamentary scrutiny. Our intention is that it will be published in the second half of next year.’

White paper on commonhold early 2025.

‘A central focus of the Bill will be reinvigorating commonhold through the introduction of a comprehensive new legal framework. To set out our thinking in advance of the Bill and invite consultation and discussion about how we finally transition away from leasehold, we will publish a White Paper on reforms to commonhold early next year.’

Commonhold the default tenure by the ned of this parliament – by 2029

Alongside setting out our plans for a comprehensive new legal framework for commonhold, we will take decisive first steps to making commonhold the default tenure by the end of the parliament. To that end, we will consult next year on the best approach to banning new leasehold flats so this can work effectively alongside a robust ban on leasehold houses.

The Draft Bill will also consider a number of vital reforms to the existing leasehold system. The government remains firmly committed to its manifesto commitment to tackle unregulated and unaffordable ground rents, and we will deliver this in legislation. We will remove the disproportionate and draconian threat of forfeiture as a means of ensuring compliance with a lease agreement. And we will consult on new reforms to the section 20 ‘major works’ procedure that leaseholders must go through when they face large bills for such works.

Further controls on Managing agents

‘We also intend to act to protect leaseholders from abuse and poor service at the hands of unscrupulous managing agents. The previous government committed to regulate the property agent sector in 2018, even asking a working group chaired by the esteemed Lord Best to advise them how to do it. Yet, over multiple years it failed to take any action.’

Conclusion

The Government is set to bring in the reforms piecemeal. The first reforms to come in in early 2025 are uncontroversial and relate to the time it takes to qualify to extend your lease and other reforms relating to the right to manage.

Throughout 2025 there will be further consultation and it is likely that the reforms relating to the cost of extending a lease and purchasing freeholds will not become law until early 2026 at the earliest.

The legal challenges to the reforms are continuing and we cannot predict if they will impact on the Government’s proposed timetable.

 

 

The new session of Parliament was opened today.
In the Government’s briefing on the King’s speech, the following was declared:

Draft Leasehold and Commonhold Reform Bill

“Draft legislation will be published on leasehold and commonhold reform”

● The Government will act quickly to provide homeowners with greater rights,
powers and protections over their homes by implementing the provisions of the
Leasehold and Freehold Reform Act 2024.

● The Government will further reform the leasehold system, enacting remaining Law
Commission recommendations relating to leasehold enfranchisement and the
Right to Manage, tackling unregulated and unaffordable ground rents, and
removing the disproportionate and draconian threat of forfeiture as a means of
ensuring compliance with a lease agreement.

● The Government will take steps to bring the feudal leasehold system to an end,
reinvigorating commonhold through a comprehensive new legal framework and
banning the sale of new leasehold flats so commonhold becomes the default
tenure

It looks as if the new Leasehold and Freehold Reform Act 2024 will become operable within the current session of Parliament. The exact timescale is still not confirmed.

We now have a new Labour Government.

During the election they said they were committed to undertaking all of the proposals of the Law Commission that led to the Leasehold and Freehold reform Act – that act was passed on the last day of the previously Parliament. However, if and when it becomes operable the Act only goes some way to implementing the Law commission’s proposals.

It could be that that Sir Kier Starmer’s Government is going to suggest more sweeping changes to leasehold law including the abolition of leasehold entirely – and if they do that they may delay the implementation of the Leasehold and freehold Reform Act 2024 Act.

Angel Rayner is now the Secretary of State for Housing, Communities and Local Government. She has responsibility for leasehold reform. As yet there has been no indication of when and if the necessary enabling Legislioaotn will be put in place to make the Leasehold and Freehold Reform Act operable.
The State opening of Parliament will be on 17th June 2024. We will hear the King’s speech is outlining all the proposed new legislation for this session of parliament. We will see on Wednesday if they are proposing to make the new leasehold reforms operable and when.

The Leasehold and Freehold Reform Act 2024 has now become law – but the process is still not complete

Leaseholders of residential flats were given the legal right to extend their leases or purchase their freeholds in 1993 – this legislation was based on similar rights given to leaseholders of houses in 1967.

The 1993 Act and subsequent Acts gave qualifying leaseholders the right to extend their leases by 90 years on top of the current unexpired lease term and any ground rent payable under the current lease is extinguished to a peppercorn (£0 ground rent). A premium is paid to the freeholder for granting the lease extension based on a calculation that takes into account the current length of lease, ground rent (payable now and throughout the entire current term of the lease) and the presumed value of the flat assuming it has an extended lease.

The 1993 and subsequent Acts gave qualifying leaseholders the right to group together and ‘force’ the freeholder to sell them the freehold – known as enfranchisement. A premium is paid to the freeholder for selling the freehold based on a calculation that takes into account the current length of lease, ground rent (payable now and throughout the entire current term of the lease) and the presumed value of the flat assuming it has an extended lease.

Over time the premiums paid to freeholders have risen rapidly and it has become apparent that freeholders have included higher and higher ground rents whenever possible when creating new leases. This has in some cases made some flats and leasehold houses unsellable. High rising ground rents and their associated issues have become a big issue.

Because of this, for several years MP’s and interested parties have been campaigning for the law to change, so that the process of extending a lease or purchasing a freehold can be ‘cheaper and quicker.’ They have campaigned to outlaw high rising ground rents and this led to the leasehold Reform (Ground Rent) Act in June 2022 – which made it illegal to charge ground rent on any new lease or lease extension.

But the campaigners wanted the reforms to go further. The general view has been that freeholder’s have had too much power in these processes over the years and that by using their resources to push forward litigation and both Tribunal and Upper Tribunal decisions, things have swung too far in their favour.   A long consultation and a subsequent Law Commission report resulted in proposed changes to leasehold law.

On Friday 24^th May 2024, as one of the last acts of the now dissolved parliament, the much awaited ‘Leasehold and Freehold Reform Act 2024’ received Royal Assent and became law.

But this is not the end of the process.

Now we have to wait for the general election and a new Government to be formed. Then and only then, can the newly appointed Secretary of State go through the final procedures for the Act to become operable.

In April 2024, the Department of Levelling up Housing and Communities predicted that after receiving Royal Assent, the next step of the process including ‘drafting and laying the secondary legislation required to bring the reforms into force’, would take some time to implement.

At that time, they anticipated that the ‘majority of the reforms will come into effect in 2025 – 2026.’

However, they did go on to confirm that… ‘With regard to the new enfranchisement valuation scheme, rest assured that we will commence all parts of this as soon as reasonably possible after the Bill receives Royal Assent so that leaseholders extending their lease or acquiring their freehold can benefit from these reforms’.

At this stage there is no indication if the new valuation scheme will be implemented as soon as possible after the new Government is in place. We will have to wait to see what they propose after 5^th July 2024.

The leasehold reforms have taken a long time to progress. The Bill only just made it to Royal Assent. Now there is yet more delay and uncertainty.

Once the new Government is in place we will know more about the timing and progress of the final part of this much awaited legislation.

 

The main proposals in the Leasehold and Freehold Reform Act 2024 that will impact leaseholders are as follows:

1. Leaseholders currently have to wait two years after purchasing a property to qualify for a statutory lease extension

Under the new legislation there will be no waiting period

 

2. Qualifying leaseholders are currently entitled to a statutory lease extension of 90 years on top of the current lease length

Under the new legislation they will be entitled to extend by 990 years on top of the current lease length 

 

3. Currently 50% of marriage value (A notional profit the leaseholder will make by extending the lease) is paid to the freeholder when extending any lease which has under 80 years unexpired at the date of valuation (the date notice is served)

Under the new legislation marriage value will be abolished   

  

4. Currently leaseholders extending their lease or groups of leaseholders purchasing their freehold are obliged to pay the freeholder’s ‘reasonable’ valuation and legal costs at the end of the process

Under the new legislation the intention is that each party will pay their own costs

 

5. In relation to enfranchisement (Leaseholders having the right to buy the freehold) currently where a building is mixed residential and commercial, if the commercial element is less than 25% of the total floor area of the building, the leaseholders can purchase the freehold. If it is above 25% they do not qualify to enfranchise.

Under the new legislation the floor area of the commercial part of the building can be up to 50% of the total floor area and only above that will the leaseholders not qualify to enfranchise   

 

6. Under the current legislation if a leaseholder has a long lease but a very high rising ground rent the only way to extinguish the ground rent would be to apply to extend the lease.

Under the new legislation leaseholders will have a right to extinguish the ground rent (and pay suitable compensation to the freeholder) without having to extend their lease.  However, in practice I expect that most leaseholders will simply extend the lease in order to get both a £0 ground rent and a very long extended lease.

 

7. Under the current legislation, when calculating the premium (compensation) to be paid to the freeholder, the full ground rent paid now and in the future (throughout the existing lease) is taken into account, no matter how many times it rises and no matter how high it rises to.

Under the new legislation there will be a cap of 0.1 of a percent of the full value of the flat when calculating the compensation relating to the ground rent currently payable.

For instance, if a flat is worth £250,000 the calculations for compensation will only be able to include a ground rent up to £250 per year regardless of the actual ground rent payable, both now and in the future. This could encourage freeholders’ surveyors to argue for higher values during any premium negotiations so they can argue for higher ground rents and a higher premium. 

 

8. Under the current legislation anyone wanting to purchase their freehold need at least 50% of the qualifying leaseholders to join together to serve notice on the freeholder and request to enfranchise.

Under the new legislation this 50% requirement will not change

 

9. Under the current legislation leaseholders wish to extend their lease or collectively purchase their freehold must serve the appropriate legal notice on their freeholder to start the statutory process.

Under the new legislation the process will be the same – legal notices will still have to be served (albeit with slightly altered wording)

 

My advice to leaseholders currently is as follows.

If you can wait for the General Election and the formation of a new Government on the 5^th July 2024 then do so. 

If you have a lease above 80 years unexpired and pay a low rising or fixed ground rent, and you need to extend your lease as soon as possible – I can carry out a valuation now and then we can decide if it is worth waiting for the new legislation to become law.  In such circumstances it is likely that the premium calculated will not be that different under the new and current regimes but obviously the payment of freeholder’s costs under the current legislation will add to the overall cost of extending your lease and the length of lease extension will be 90 years not 990 years.

However, if you need to extend now, if you are being pushed to re-finance or you are needing to sell as soon as possible, I would seriously consider extending the lease now rather than later. Sometimes paying additional costs now could save you money in the long run, especially if you are facing penalties on an onerous mortgage term.

If you have a short lease 80 years or less and/or are paying a high rising ground rent then I would seriously consider waiting for the Election if you are able to do so

Each person’s particular circumstances must be looked at on an individual basis and I would be more than happy to give advice to anyone if required.

The same advice applies to groups of leaseholders thinking of purchasing their freehold.

On Friday 24^th May, as one of the last acts of the now dissolved parliament, the much awaited ‘Leasehold and Freehold Reform Act 2024’ received Royal Assent and became law.

But this is not the end of the process.

Now we have to wait for the general election and the new Government to be formed. Then and only then can the newly appointed Secretary of State go through the final procedures for the Act to become operable.

In April 2024, the Department of Levelling up Housing and Communities was predicting that after receiving Royal Assent, the next step of the process including ‘drafting and laying the secondary legislation required the bring the reforms into force’, would take some time to implement.

At that time they anticipated that the ‘majority of the reforms will come into effect in 2025 – 2026.’

However they do confirm that… ‘With regard to the new enfranchisement valuation scheme, rest assured that we will commence all parts of this as soon as reasonably possible after the Bill receives Royal Assent so that leaseholders extending their lease or acquiring their freehold can benefit from these reforms’.

They also advise that Leaseholders should continue to seek professional advice on their particular circumstances.

At this stage there is no indication if the new valuation scheme will be implemented as soon as possible after the new Government is in place. We will have to wait to see what they propose after 5^th July 2024.

The leasehold reforms have taken a long time to progress. The Bill only just made it to Royal Assent. Now there is yet more delay and un-certainty.

Once the new Government is in place we will know more about the timing and progress of the final parts of this much awaited legislation.

With the announcement of the forthcoming General Election for 4th July 2024 it was thought that the Leasehold and Freehold Reform Bill would be lost for lack of time

However it has been reported that the Bill is being debated today on the last day possible before Parliament is dissolved

More updates when they are available

 

 

 

The report stage of the Bill is under way in the House of Lords with two ‘sitting’ dates schedules for 5th and 11th June.

Then there will be a final reading in the Lords and the Bill will go back to the House of Commons.

For more information on the progress of the Bill follow this link https://bills.parliament.uk/bills/3523/stages/18742

There is still no indication when and if the Bill will become law before the next general election.

The Bill has made it through the House of Commons and has had two readings in the lords – the committee stage in the Lords is due for 22nd, 24th and 29th April and ends on 1st May.

The Lords will then produce a report and they have a third debate on the Bill (no dates are currently set for these stages) and then the Bill goes back to the Commons for consideration of amendments and Royal Assent.

But that will not be the end of the process – after than there will most likely be parliamentary procedures required to finalise the Bill and the Secretary of State will have to set percentages and other valuation variables to be used in the lease extension and freehold purchase calculation.

There is no guarantee that this can take place before the next general election. The outcome of this Bill is still not guaranteed.

My advice remains the same – if you have a low ground rent and a lease above 80 years unexpired and you want to extend your lease you should still consider proceeding now.

If you have a lease under 80 years or a high ground rent – and you are abe to wait, it might be worth waiting to see what happens with the Bill.

If you are still not sure what to do and you need advice – feel free to contact us

Email:    amarsden@marsdensurveyors.co.uk

Web:      www.marsdensurveyors.co.uk

For more information about the progress of the Bill visit https://bills.parliament.uk/bills/3523

The Bill has progressed to the House of Lords

It will still need a second reading, the committe stage and a third reading before it can move towards Royal Assent.

The second reading in the Lords is taking place on 27th March 2024

To see how the Bill is progressing – follow this link https://bills.parliament.uk/bills/3523

 

The Bill has completed the committee stage and on 27th February 2024 it had its third reading in Parliament with proposed amendments.

Here is a link to the latest update from Parliament – https://hansard.parliament.uk/commons/2024-02-27/debates/6FE58B52-9F01-4FC5-8E26-C97C5A7B383A/LeaseholdAndFreeholdReformBill

 

 

The Government appears determined to get this Bill onto the Statue books.

The First Reading of the Bill in parliament was on 27th November 2023

The Second Reading of the Bill was on 11th December 2023

On 11th December there were also the following:

Programme Motion

Money Resolution

and a Ways and Means Resolution

The Government has already announced that the committee stage is likely to commence on 15th January 2024 and they are asking ‘interested parties’ to submit their comments on the proposed reforms via this link https://www.parliament.uk/business/news/2023/december-2023/leasehold-and-freehold-reform-bill-call-for-evidence/

A full copy of the proposed Bill can be found here https://publications.parliament.uk/pa/bills/cbill/58-04/0013/230013.pdf

Proposed amendments can be found here https://publications.parliament.uk/pa/bills/cbill/58-04/0013/amend/leasehold_rm_pbc_1220.pdf

This link outlines the stages of the proposed Bill https://bills.parliament.uk/bills/3523/stages

It looks very liekly this will become law

 

 

Anyone can take part in the Government’s consultation on Ground Rents – simply follow this link: https://www.gov.uk/government/consultations/modern-leasehold-restricting-ground-rent-for-existing-leases

All responses must be made by the 21st December 2023

Rishi Sunak has asked the housing minister Rachel Maclean – (quoted in an earlier update) to step down.

In her place Lee Rowley has been appointed Minster of State (Minister for Housing) in the Department for Levelling Up, Housing and Communities

Whether this will have any impact on the proposed Leasehold and Freehold Bill remains to be seen – more updates to follow

Yesterday (9^th November) the Government released its consultation on Ground Rents. This is a new proposal not suggested previously and the Government want to consult on this before putting it in the proposed Bill.

https://www.gov.uk/government/consultations/modern-leasehold-restricting-ground-rent-for-existing-leases

They are seeking people’s views from the industry and leaseholders on how the current rent in flats should be capped or extinguished. Their aim is make living in a leasehold property easier, cheaper and fair.

They are asking for people’s opinions on five different possible solutions.

1. Reduce all current ground rents to a peppercorn – £0
2. Cap all current ground rents to a maximum figure – a maximum ground rent of £250pa is suggested.
3. Cap ground rents to a percentage of the value of the property – a figure of 0.01% of the total value has been suggested.
4. Fix all ground rents to their original amount – the ground rent that was payable at the beginning of the lease – regardless of the ground rent now payable.
5. Fix all ground rents at the amount currently paid. So that there will be no more increases ground rent.

The consultation closes on 21^st December 2023.

This proposal is controversial. It is rare for a Government to become involved in altering existing contracts. A lease is a contract between a leaseholder and a freeholder. Some people have suggested that this proposal would be ‘confiscation’ by the Government. As such I believe that this controversial proposal will be challenged and it is possible it may not find its way into the proposed legislation. However the government does appear to be determined to get all their proposals through the legislative process before the end of 2024.

 

After the King’s Speech on Tuesday the Prime Minister issued a briefing giving more details on what was outlined in the speech – this is the link to the full document – it runs to 78 pages

https://assets.publishing.service.gov.uk/media/654a21952f045e001214dcd7/The_King_s_Speech_background_briefing_notes.pdf

In relation to the proposed leasehold reform pages 45 – 47 are as follows: I have highlighted the most relevant points

Leasehold and Freehold Bill
“My Ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges.”

• The Leasehold and Freehold Reform Bill delivers the Government’s manifesto
  commitments on leasehold reform. This decisive action will address one of the
  longest-term challenges that the country faces: fairness in the housing market.
• The Bill will make the long-term and necessary changes to improve home
  ownership for millions of leaseholders in England and Wales, by making it cheaper
  and easier for more leaseholders to extend their lease, buy their freehold, and take
  over management of their building.
• These reforms build on the success of the Leasehold Reform (Ground Rents) Act
  2022, which put an end to ground rents for new, qualifying long residential
  leasehold properties in England and Wales as part of the most significant changes
  to property law in a generation.

What does the Bill do?
● The Leasehold and Freehold Reform Bill will put the country on the right path for
the future by giving homeowners a fairer deal in the following ways:

• Empowering leaseholders:

o Making it cheaper and easier for existing leaseholders in houses and
flats to extend their lease or buy their freehold – so that leaseholders pay
less to gain security over the future of their home.

o Increasing the standard lease extension term from 90 years to 990 years
for both houses and flats, with ground rent reduced to £0. This will ensure
that leaseholders can enjoy secure, ground rent free ownership of their
properties for years to come, without the hassle and expense of future lease
extensions.

o Removing the requirement for a new leaseholder to have owned their
house or flat for two years before they can benefit from these changes –
so that more leaseholders can exercise their right to the security of freehold
ownership or a 990-year lease extension as soon as possible.

o Increasing the 25 per cent ‘non-residential’ limit preventing leaseholders
in buildings with a mixture of homes and other uses such as shops and
offices, from buying their freehold or taking over management of their
buildings – to allow leaseholders in buildings with up to 50 per cent non-
residential floorspace to buy their freehold or take over its management.

• Improving leaseholders’ consumer rights:
• Making buying or selling a leasehold property quicker and easier by
  setting a maximum time and fee for the provision of information required to
  make a sale (such as building insurance or financial records) to a leaseholder
  by their freeholder (known as ‘landlords’).

o Requiring transparency over leaseholders’ service charges – so all
leaseholders receive better transparency over the costs they are being
charged by their freeholder or managing agent in a standardised comparable
format and can scrutinise and better challenge them if they are unreasonable.

o Replacing buildings insurance commissions for managing agents,
landlords and freeholders with transparent administration fees – to stop
leaseholders being charged exorbitant, opaque commissions on top of their
premiums.

o Extending access to “redress” schemes for leaseholders to challenge
poor practice. We will require more freeholders to belong to a redress
scheme so leaseholders can challenge them if needed.

o Scrapping the presumption for leaseholders to pay their freeholders’
legal costs when challenging poor practice.

o Granting freehold homeowners on private and mixed tenure estates the
same rights of redress as leaseholders – by extending equivalent rights to
transparency over their estate charges, access to support via redress
schemes, and to challenge the charges they pay by taking a case to a
Tribunal, just like existing leaseholders.

o Building on the legislation brought forward by the Building Safety Act
2022, ensuring freeholders and developers are unable to escape their
liabilities to fund building remediation work – protecting leaseholders by
extending the measures in the Building Safety Act 2022 to ensure it operates
as intended.

• Reforming the leasehold market:

o Banning the creation of new leasehold houses so that – other than in
exceptional circumstances – every new house in England and Wales will be
freehold from the outset.

• We will also consult on capping existing ground rents, to ensure that all
  leaseholders are protected from making payments that require no service or benefit
  in return, have no requirement to be reasonable, and can cause issues when
  people want to sell their properties. Subject to that consultation, we will look to
  introduce a cap through this Bill.

Territorial extent and application

• The Bill will extend and apply to England and Wales.
  Key facts
• The Building Safety Act 2022 delivered far-reaching protections for leaseholders
  against remediation costs and an ambitious enforcement regime to hold
  freeholders and developers to account.
• There are 752,000 households with children and 1.48 million over-65s who are
  leasehold homeowners.
• Leasehold reform will support the housing market. 49 per cent of leaseholders are
  first time buyers, and 28 per cent of leaseholders are under 35. Land Registry data
  tells us that 22 per cent of residential property transactions in 2019 were leasehold
  – around 238,000 transactions in total. Almost all flats are sold on a leasehold basis
  compared to 6 per cent of houses.
• The current leasehold system leaves many homeowners trapped in their properties
  or facing extortionate costs to buy their freeholds, for example:

o Case Study 1: Sian paid £225,000 in 2020 for her new build flat in Southend.
Her lease had a ground rent indexation start date of March 2018 (when the
development started) with 5-year reviews based on RPI, and so is now due
for review. As a result, Sian has seen her ground rent rise from £350 to over
£450 per year and she is braced for another RPI review in five years’ time.

o Case Study 2: Zack bought a flat in North Yorkshire in 2008 with a ground rent
of £300 and a 10-year doubling clause, meaning he now pays £600. Zack
wants to sell the flat and is considering a lease extension to extinguish the
ground rent as he does not think lenders will lend against a lease with the
current ground rent terms. He has been quoted £25,000 to extend the lease
and cannot afford to pay this sum.

• Our reforms will tackle these issues head on:

o We are making it significantly cheaper for leaseholders to extend their leases.
For example, a young first-time buyer in a £250,000 leasehold flat in
Birmingham with 76 years left on the lease would currently have to pay around
£16,000 to extend the lease plus around £10,000 to cover their costs and the
freeholder’s costs. Under our reforms, they will now only pay around £9,000
plus their own legal costs for a 990-year extension – a saving of over £10,000.

o The ground rents cap we are consulting on could save leaseholders up to an
average of £250 in year one and £6,000 over the remaining term of their lease
– that would be £250 back in people’s pockets each year. This will also make
it easier for people to sell their properties and get mortgages.

I have consdered the examples given and an analysis of these examples shows that they are not completely accurate and can only be considered an example of the type of saving that might be possible wiith their prposals – the examples appear to have been taken from the previous consultation on Leasehold reform and the example set in Birmingham has been calculated using variables suitable for leasehold houses and not flats. It appears these examples have been used to broadly illustrate the Government’s aims rather than to be accurate examples.  

So far all we have is a commitment to alter leasehold law and to make it cheaper and easier to extend your lease or purchase your freehold.

The Government have said previously that they are committed to abolishing marriage value but until the details of this commitment are confirmed we cannot say if this will be the case. However to make the process cheaper, abolishing marriage value would be the most likely, if controversial way to do this.

They have not given any additional detail and we await further announcements. This is simply a proposed Bill and it will take some time for it to progress through Parliament and become law.

It would appear that although their commitment to the Bill has been made clear we are unable to confirm when it will become law and what the final Legislation will contain.

However based on their previous announcements the Bill is likely to include the following with regard to lease extensions:

1. New leases to be 990 years plus the current lease.
2. Abolition of marriage value (on any leases below 80 years – above 80 years there is already no marriage value).
3. A cap on ground rents that can be used in the premium calculation no matter how high they are or will be over the term of the lease.
4. A possible reduction of all current ground rents to zero. This is yet to be confirmed.
5. Freeholder’s to pay all their own costs.
6. A commitment to make the valuation process more regimented and ‘cheaper’ for leaseholders.
7. The possible abolition of the two year ownership rule – currently required in order to qualify to extend a lease.

With regards to freehold purchases the proposals are similar however there is a proposal for dealing with any development land or roof space with a potentially high value, which is owned by the freeholder. The proposal is that this land or roof space can be leased back to the freeholder to avoid any excessive costs when acquiring the freehold.

There is also a commitment to ban the sale of leasehold houses unless in exceptional circumstances.

My current advice is as follows:

• If you have a lease above 80 years unexpired then I recommend that you seriously consider moving forward with your proposed lease extension or freehold purchase. However if you have a very high rising ground rent seek professional advice before proceeding.
• If you have to extend your lease to obtain finance or as part of a sale or purchase – you may have no other choice but to continue with your lease extension.
• If you want to extend your lease or purchase your freehold to suit your own personal circumstances then you may have to proceed regardless of any proposed new legislation.
• If your lease is below 80 years unexpired and you have time, then I recommend that you wait to see how the proposed Bill progresses. This is a short term of Parliament and there are many proposed Bills to process, there is still no guarantee that the proposed new legislation will become law.

If you need further advice about any aspect of residential leasehold property, please feel free to contact me

 

 

This Extract is from page 25 for the notes provided by the Government on today’s King’s Speech

4.5 Leasehold and commonhold reform

On 20 February 2023, Michael Gove, Secretary of State at the Department for
Levelling Up, Housing and Communities referred to the possibility of
legislation being including in the King’s Speech:

We hope, in the forthcoming King’s Speech, to introduce legislation to
fundamentally reform the system. Leaseholders, not just in this case but in so
many other cases, are held to ransom by freeholders. We need to end this
feudal form of tenure and ensure individuals have the right to enjoy their own
property fully.

More information can be found in the Library briefing, Leasehold and
commonhold reform and the constituency casework article Leasehold reform
in England and Wales: What’s happening and when?

https://commonslibrary.parliament.uk/research-briefings/cbp-8047/

https://commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/

 

The King has just confirmed – ‘My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of home owners through punitive service charges’

That is all the information we have so far. The Government is expected to publish more details as soon as the speech is over. More updates to follow.

Updates on the proposed changes to leasehold law to follow

Today the King opens Parliament and in the King’s Speech we will find out what the Government is planning for Leasehold Law. More updates to follow…