What The Planned Leasehold And Freehold Reform Bill Could Mean For You

Proposed New Rights For Leaseholders

Leaseholders are looking forward to some very exciting and advantageous new rights under reforms announced in the King’s Speech.

The impending Leasehold and Freehold Reform Bill will also benefit large numbers of leaseholders that may feel they are currently being overlooked to some degree by the law.

But the proposals are also likely to raise concerns among freeholders. And the measures could also create a number of unintended consequences.

Let’s examine the proposed changes one by one…

Making It Cheaper And Quicker To Buy The Freehold Or Extend Your Lease

Leaseholders would pay less to “gain security over the future of their home,” declares the government. But significantly, it stops short of saying precisely how. 

And that is crucial because much of the cost of buying the freehold and extending the lease involves compensating the freeholder for the ‘marriage value’ if the lease falls below 80 years in length. (The marriage value is the uplift in the value of the property once the lease has been extended.)

At present, landlords who sell their freehold interest can enjoy a large amount of compensation from their leaseholders if marriage value is payable.

Will that process continue? If so, the promised savings might not be significant for leaseholders.

But if the government did abolish marriage value on all lease extensions or freehold purchases then freeholders would likely feel aggrieved.

And what about the leaseholders who have already had to purchase a lease extension prior to the new legislation? They might not be happy about missing out on potential savings.

Increasing The Standard Lease Extension From 90 Years To 990 Years

This is a smart suggestion that would give leaseholders even more security over their valuable leasehold interest.

However, one could argue that the difference in value to a flat when extending the lease by 90 years or 990 years may be negligible, depending on the original lease term. 

Removing The Two-Year Time Limit

Under the current law, leaseholders must have owned their flat for at least two years before they can extend their lease.

At best that is inconvenient, and at worst it could cost the leaseholders money – especially if the lease drops below the crucial 80-year mark during this period. (Though their solicitor should have advised them of this when they bought the property.)

Removing the two-year time limit would be a positive for leaseholders. These important rights should be available to all leaseholders.

Helping More Leaseholders To Buy the Freehold Or Enjoy The Right to Manage

If you’re a leaseholder living in a block that contains non-residential property – such as a shop or an office – then you may not benefit from the same rights as leaseholders living in all-residential blocks.

If 25% of the block is non-residential, then you don’t qualify for the right to buy the freehold or the right to manage your building. The government is planning to raise that threshold to 50%.

That would give more leaseholders access to these rights.

Making Leasehold Property Sales Quicker And Easier

The government wants to speed up leasehold property transactions by setting a maximum time and fee for the information that freeholders have to provide leaseholders.

Leaseholders will obviously welcome this. However, freeholders and agents will be under more pressure in this regard.

Making Service Charges More Transparent

Service charge disputes are relatively common in many blocks of flats. At some point one or more leaseholders may wish to challenge a chargeable item.

And often with good reason: to quote the government, some service charges can be positively “exorbitant”.

Making service charges more transparent would help to prevent some of these arguments and provide leaseholders with more faith in their freeholder’s management.

Making Buildings Insurance Fairer

Leaseholders may not realise it but freeholders and managing agents often get commission when they procure buildings insurance for the block.

The cost of that commission – which can sometimes be quite high – is ultimately charged to the leaseholders. It can be added to their insurance premium.

So the government plans to remove that commission and replace it with a more transparent administration fee.

In principle, it would give the leaseholders greater oversight and hopefully prevent landlords and their agents from potentially exploiting the current system.

Making Freeholders/Landlords More Accountable For Poor Practice

More freeholders would be required to belong to a redress scheme – giving leaseholders a greater opportunity to challenge them over alleged poor practice.

There are also plans to remove the presumption that leaseholders will pay freeholders’ legal costs when challenging their service and charges.

Precise details of these proposed changes have yet to emerge.

Equal Rights For Freehold Homeowners On Private/Mixed Tenure Estates

Owners who’ve bought the freehold on private and mixed tenure estates would gain:

• the right to transparency over estate charges
• access to a redress scheme.

These provisions would bring them into line with their leaseholder neighbours. This makes sense: it would close a legal loophole that currently excludes freeholder houses on an estate with an estate/rent charge for common parts.

Banning The Sale Of Leasehold Houses

Builders would be banned from creating new leasehold houses (unless there were exceptional circumstances). All new homes would be freehold from day one.

Capping Existing Ground Rents On Leasehold Properties

The government plans to undertake further consultation on capping ground rents on existing developments.

It has already been forced to bring in the Leasehold Reform (Ground Rent) Act 2022 to protect leaseholders from excessive ground rents on new flats – setting the ground rents to a peppercorn in such circumstances.

The new proposals – should they come to fruition – would go a step further, capping ground rents on existing leases. This is likely to be met with disapproval from many freeholders who could see the value of their interests diminish, depending on the circumstances.
 
Under the proposed new legislation, the government would also extend measures brought in under the Building Safety Act 2022.

The aim is “to ensure it operates as intended” – which is Whitehall-speak for closing one or more loopholes.

One loophole involved leases being extended no longer qualifying for protective measures under the legislation. This issue has since been fixed by the Levelling Up and Regeneration Act 2023 which received the Royal Assent on October 26 2023.

The Building Safety Act has also been criticised for holding up the sale of leasehold properties.

Get Expert Legal Advice On Leasehold Property

Leasehold property law can be highly complex – especially with all the changes being suggested in the planned new legislation.

For expert legal advice, contact Coles Miller Partner Nick Leedham who specialises in residential leasehold property matters. He is based at our Bournemouth office.