The Leasehold and Freehold Reform Bill, which was introduced to Parliament on 27 November 2023.
Back on 7 January 2021, Robert Jenrick, the then Housing Secretary, announced that leasehold reform would be tackled through two pieces of legislation
The first part, The Leasehold Reform (Ground Rent) Act 2022, came into force on 30 June 2022. And the Government committed to action on the second part in February of this year. Please see our earlier Bulletin.
The long-awaited second part, the Leasehold and Freehold Reform Bill has now been published. The Government says that this Bill will:
- Increase the standard lease extension term for houses and flats to 990-years (up from 90 years in flats, and 50 years in houses), with ground rent reduced to a peppercorn (zero financial value) upon payment of a premium. This will make sure that leaseholders can enjoy secure, ground rent-free ownership of their properties for years to come, without the hassle and expense of repeated lease extensions.
- Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.
- Remove 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.
- Increase the 25% ‘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% non-residential floorspace to buy their freehold or take over its management.
- Make 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’).
- Require 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.
- Replace 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.
- Extend access to “redress” schemes for leaseholders to challenge poor practice. We will require freeholders who manage their property to belong to a redress scheme so leaseholders can challenge them if needed.
- Scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.
- Grant 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 and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders.
- Build 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.
- Ban the sale of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.
As announced in the King’s Speech, the Government will introduce some measures at first reading and others as amendments as the Bill makes its way through Parliament to deliver on the full range of commitments. These will include measures to amend the Building Safety Act 2022 to make it easier to ensure that those who caused building-safety defects in enfranchised buildings are made to pay, and that the leaseholder protections are not unfairly weighted against those who own properties jointly.
Earlier this month, the Government also published a consultation 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, the Government will look to introduce a cap through the Leasehold and Freehold Reform Bill.
The Bill will extend and apply to England and Wales.
The Government says that these changes will, amongst other things, make it significantly cheaper for leaseholders to extend their leases. An example given previously by Government was that a young first-time buyer in a £250,000 leasehold flat in Birmingham with 76 years left on the lease, who 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, would, under these reforms, now only pay around £9,000 plus their own legal costs for a 990-year extension – a saving of over £10,000.
Housing Secretary, Michael Gove, has reportedly said that he is confident that the Bill will pass into law before the general election. We will keep you up to date on any developments.
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