Leasehold Reform: Analysing Key Proposals from the King’s Speech
The Leasehold and Freehold Reform Bill, as unveiled in the King’s Speech, aims to revamp the intricate leasehold system in the UK. However, the proposed changes have ignited a mix of interest and skepticism among leaseholders and industry experts alike.
The existing leasehold laws, spanning over 50 Acts of Parliament and a hefty 450+ pages, have long been criticized for their intricate and inconsistent nature. The complex legal framework often results in prolonged and costly legal disputes.
The King’s Speech made ambitious promises to streamline the process, making it “cheaper and easier for leaseholders to purchase their freehold and addressing the exploitation of millions of homeowners through punitive service charges.”
1.Simplifying Lease Extensions and Freehold Purchases:
The promise to make it “cheaper and easier” for leaseholders to purchase their freehold or extend their lease is a welcome intention. However, the lack of specific details in the King’s Speech has left practitioners wondering about the true extent of these reforms. Clarity is crucial, as ambiguity could perpetuate the current complexities.
2. Lease Extension Term Increase and Ownership Rule Removal:
The increase of the standard lease extension term from 90 to 990 years aligns with previous policy statements. The removal of the 2-year ownership rule for statutory lease extensions and freehold purchases/lease extensions may expedite the process, reducing hurdles for leaseholders.
3. Ban on New Leasehold Houses:
The ban on creating new leasehold houses fulfills a Conservative manifesto commitment, although its impact may be limited due to the already minimal number of houses being sold on a leasehold basis post-Leasehold Reform (Ground Rent) Act 2022.
4. 50% ‘Non-Residential’ Limit for Freehold Claims:
The increase in the ‘non-residential’ limit to 50% for freehold and right to manage claims is a surprising move, especially since it was the subject of a government consultation in January 2022 with no subsequent response.
5. Consultation on Capping Ground Rents:
The proposal to consult on capping all existing ground rents is perhaps the most contentious. The challenge will revolve around determining fair compensation for landlords, especially considering the involvement of funds, potentially part of pension funds, that own significant ground rent portfolios.
1. Abolition of Marriage Value:
The omission of the proposed abolition of marriage value, a controversial measure, is conspicuous. This absence raises questions about the government’s stance on this critical issue.
2. Capitalisation and Deferment Rates, Enfranchisement Calculator:
The exclusion of these measures, which were part of the February 2021 policy statement, indicates a potential shift in priorities or a recognition of the complexity involved in balancing the interests of leaseholders and landlords.
3. Phasing Out Leasehold in Favour of Commonhold:
The absence of any mention of phasing out leasehold properties and promoting commonhold is likely due to the monumental cultural shift required, suggesting that it remains a long-term goal rather than an immediate priority.
4. Ground Rent Consultation:
Arguably the most impactful proposal is the consultation on capping ground rents, which could potentially rewrite existing leases and significantly impact premiums paid by leaseholders.
The proposed Bill aligns with recommendations from the Law Commission, covering aspects like lease extension length, process enhancements, and the removal of the two-year ownership rule. The Bill introduces supplementary changes, including setting time and fee limits on landlords for providing management information, replacing building insurance commissions with transparent administration fees, and broadening redress schemes for freeholders.
However, we would recommend proceeding with caution. Despite the promising reforms outlined in the King’s Speech, industry experts advise against premature celebration. The true impact of these proposed changes will only be revealed once the final Bill is presented, urging leaseholders and industry stakeholders to monitor developments closely. Until these have been proposed into a bill and follow the full Parliamentary procedure, they will not become law. This process can take some time and an Act could materialise in 6-months, a year or not at all, as these changes are not high on the government’s legislative agenda and as me move to an election footing.
The Leasehold and Freehold Reform Bill, as outlined in the King’s Speech, hints at a potential transformation in the UK housing market. However, until the draft Bill is revealed, stakeholders are urged to approach the proposed changes with caution, acknowledging the uncertainties and potential amendments that may emerge during the Bill’s journey through Parliament.
Arcadia Law are specialists in leasehold enfranchisement (lease extension) and collective enfranchisement (freehold purchase) matters. We would be pleased to provide you with a FREE initial consultation on how we may be able to assist you considering your particular circumstances. Call us today on 020 8546 6630 to speak with one of our friendly advisors.