This month I have been asked to recap the changes to leasehold law during 2023. There have been numerous reforms, and a great deal of talk about future changes, in the years since the Government announced that it was going to tackle the thorny and complex question of reforming leasehold ownership.
Building Safety Act
The Building Safety Act (BSA) received Royal Assent on 28 April 2022, ushering in ground-breaking reforms to give residents and homeowners more rights, powers, and protections. The Act came into force on 1 April 2023, and should be fully enforceable by October 2024, when the Levelling-up and Regeneration Act 2023 also becomes law.
The protections in the BSA are welcome news for leaseholders who feared they could be liable for covering the high costs of remedial safety works, such as replacing faulty cladding. The BSA aims to provide qualifying leaseholders with protection against service charge costs relating to remedial work concerning building safety for relevant buildings (those over 11m high or with five or more storeys).
King’s Speech
Following the extensive work carried out by the Law Commission in 2020, and after ongoing pressure for reform of the leasehold sector, the Government announced the next phase of its reform programme in relation to residential leasehold during the King’s Speech on 7th November 2023.
The briefing document which accompanied the King’s Speech provides an outline of the Government’s intentions. The stated aim remains to “make it cheaper and easier” for existing leaseholders in houses and flats to extend their lease or buy their freehold, echoing the terms of reference given to the Law Commission to inform the work for their 2020 report.
Leasehold and Freehold Reform Bill
The King’s Speech was quickly followed by the introduction of The Leasehold and Freehold Reform Bill to Parliament on 27 November 2023 which will set the tone and context for much of the reforms to leasehold law over the coming year. The Bill is currently progressing through Parliament, and had its second reading on 11th December 2023, and the Government says it represents “the most significant reforms of the leasehold system for a generation.”
The Bill aims to reform the leasehold sector and make good on the Government’s commitment to make it ‘easier, faster, fairer and cheaper’ for leaseholders to extend their lease or purchase the freehold to their property. The Bill is the second phase of the Government’s plans, following on from the Leasehold Reform (Ground Rent) Act 2022, which outlawed ground rents for new, qualifying residential leasehold properties in England and Wales.
The Government says the Bill will “make the long-term and necessary changes to improve homeownership for millions of leaseholders in England and Wales” with Levelling Up Secretary, Michael Gove, stating he is confident that legislation will be passed before the next General Election. This landmark Bill proposes a series of changes that could have far-reaching implications for leaseholders, freeholders, and the wider property and financial markets.
Perhaps the most significant change is the proposed reform to valuation to eliminate ‘marriage value’ from lease extension and enfranchisement premium calculations. This is significant, as it would considerably reduce the cost of extending a lease with fewer than 80 years remaining, effectively providing the owners of short lease properties with a one-off windfall when they come to next extend the lease.
Other proposals include:
- Increasing the standard lease extension term for both flats and houses to 990 years, up from 90 years for flats and 50 years in houses.
- Reducing ground rent to a peppercorn (i.e. £0) upon payment of a premium
- banning the sale of new leasehold houses in all but exceptional circumstances, making good on a manifesto commitment.
- increasing the ‘non-residential’ limit from 25% to 50%, thereby enabling leaseholders in buildings with up to 50% non-residential floorspace, such as retail and offices, to buy their freehold or take over its management.
The Government has not gone as far as to abolish new leaseholds on flats. Despite referring to leasehold as an outdated and feudal system that needs to be abolished, the Government appears content for new flats to be bought and sold as leasehold for the time being.
Consultation on capping ground rents
The Government is further consulting on whether to introduce a cap on ground rents for all existing leases through primary legislation. The Government has outlined five proposals to reduce ground rents for existing leaseholders as part of a consultation launched in November.
These are:
- Setting ground rents at a peppercorn;
- Putting in place a maximum financial value which ground rents could never exceed;
- Capping ground rents at a percentage of the property value;
- Limiting ground rent in existing leases to the original amount when the lease was granted; and
- Freezing ground rent at current levels.
This consultation on capping ground rents has been extended to 17 January 2024.
Leasehold professionals, as well as freeholders, their managing agents and leaseholders themselves, have been eagerly awaiting clarity from the Government on what the next tranche of reform legislation will look like. Now we know.
Having waited years for clarity on the substance of reforms to the leasehold sector, it is helpful that the draft Leasehold and Freehold Reform Bill has been introduced so quickly following the announcements in the King’s Speech. We look forward with interest to following the Bill’s progression through Parliament, and seeing what amendments, debates and challenges may be brought forward over the coming months.
If anyone wishes to discuss any aspect of the above, please do not hesitate to contact us by emailing [email protected] or by contacting me on 020 7079 2415.
The above is accurate as at 12 December 2023. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
