The Secretary of State for Levelling Up, Housing and Communities, Michael Gove has reignited discussions around potential Leasehold reform for 2023.
Speaking in televised interviews and via a written response to the Financial Conduct Authority’s recent review into the market in January 2023, he has referred to many significant leasehold reforms that may be put into place by the end of the year.
Here we’ll be summarising the key points raised, from responsibility for cladding replacement to insurance commission reforms. But first, a quick reminder of the preamble to these most recent announcements.
Where It All Began
In January 2022, Mr Gove ordered an inquiry into the building’s insurance market following concern around unfair fees being charged to Leaseholders.
In May 2022, the FCA announced that they would be collecting data on ‘fair value’ for leaseholders. It’s this review of the market that Mr Gove has now responded to in writing and across several interviews and speeches.
Purchasing Freehold to be Cheaper and Easier
In a TV interview on the 29th of January 23, Mr Gove said himself that “if you buy a flat that flat should be yours” – a sentiment shared by Leaseholders across the country. Under his new proposals, it would be far easier and financially achievable for millions of families in leasehold flats to buy their property outright before the next election.
Owning the freehold means residents can avoid paying expensive ground rents and management fees- a welcome change, especially given the current cost of living crisis.
He’s stated that the Government’s plans include scrapping leasehold laws that prevent some flat owners from buying their freehold as well as making it easier for leaseholders to come together and own their properties under a common ownership model. Leaseholders would also be able to buy out the ground rent without extending their lease first, which currently adds another layer of expense and difficulty.
Fire Risk Remediation Works
Some of the most hotly anticipated news is that, under the proposed changes, leaseholders may no longer need to worry about covering the cost of post-Grenfell remediation works, including cladding. Responsibility would lie with landlords and developers- a point that has been in contention since the Grenfell tragedy in 2017.
On the 30th of January, Mr Gove stated in the House of Commons that “Leaseholders no longer need to fear financial ruin simply to make their homes safe.” On the same day, Richard Goodman (Director-General of Safer and Greener Buildings) wrote to developers and provided them with a legally binding contract for them to sign.
The agreement is legally enforceable and means that homebuilders must fix all buildings of over 11 metres in height that they have played a role in developing or refurbishing in the last 30 years in England. They will be expected to pay for life-critical fire safety repairs and to reimburse taxpayers where public money has been used to fix unsafe buildings.
A deadline of the 10th February was set for developers to respond re their intention to sign the contract, with a further deadline of the 13th March to sign on the dotted line. The Government has issued a warning to those who choose not to sign, suggesting that they will face consequences such as a lack of building control approval.
Changes to Insurance Commission Transparency
Leaseholders have always been expected to pay for buildings insurance premiums via their service charges. The choice of the Insurer and policy is often accepted by a Residents’ Management Company, Freeholder, Landlord, of Property Managing Agent, meaning in certain circumstances leaseholders have no control over quality or cost for their own personal asset.
The FCA’s review into insurance commissions and their effect on Leaseholder’s service charges found that almost a third of the cost of insurance premiums could be made up of commission and fees and that service charge demands were not transparent enough for this to be easily spotted by Leaseholders.
We expect an announcement mid year on the changes the FCA will be putting in place, we will ensure you are kept informed of changes as they happen.
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