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.