3rd July 2024 | Amanda Newman | leasehold, reform bill, property market

Amanda Newman, Trainee Solicitor, in our Residential Real Estate department, discusses how the Leasehold Reform Act aims to transform the UK property market, addressing long-standing leaseholder grievances and shifting power dynamics between leaseholders and freeholders

As part of The Sherrards Training Academy, we have asked our Legal Assistants and Trainee Solicitors to write articles to support their learning, and also to ensure they start to build on their own personal brand. This article has been fact-checked and proofread by Head of the Residential Real Estate department, Caroline Vernon. 

In 2023, Michael Gove, Secretary of State for the Department of Levelling Up, Housing and Communities, announced he was confident that by the next general election, there would be a change in the leasehold system in the UK, addressing long-standing grievances within the property market. Gove emphasised the need to overhaul the leasehold system citing concerns that leaseholders are often held hostage by freeholders, constraining their rights to fully enjoy their own properties.

Pressure has been mounting on the government to address these issues. Leaseholders have complained of escalating ground rents, exorbitant service charges, unexpected fees and complex processes for enfranchisement and lease extensions, effectively limiting the autonomy of leaseholders in their own homes.

The first significant milestone in the reform effort was the Leasehold Reform (Ground Rent) Act 2022 (LRGRA 2022), which limits ground rents for lease extensions to one peppercorn per year. This primarily benefits new homeowners, while existing leaseholders continue to face challenges as the Act does not apply retroactively.

In November of 2023, a new bill was introduced to Parliament – the Leasehold and Freehold Reform Bill. Some of the key proposed measures include:

  • Extending lease terms for flats and houses to 990 years, and capping the ground rent (i.e. peppercorn)
  • Allowing new leaseholders to benefit immediately, by removing the 2-year ownership wait
  • Raising the ‘non-residential’ limit from 25% to 50% to help leaseholders buy their freehold
  • Setting maximum time limits and maximum fees when providing necessary sale information
  • New houses cannot be leasehold
  • Requiring transparent and standardised service charge information for leaseholders.

Overall, the provisions make it much easier for leaseholders to enjoy security of their home, as well as making it easier to obtain the right to manage. Previously, when making a claim against a freeholder whether it be opposing service charges or exercising their enfranchisement rights, leaseholders were often deterred through risk of paying their freeholder’s expenses and legal costs. The Bill seeks to rectify this also.

By late April 2024, the Bill was being read in the House of Lords, and on the 24th May 2024, it received Royal Assent after being pushed through Parliament with the aim of having it passed before the dissolution of Parliament. However, not all proposed changes were included in the final Bill:

  • A cap for ground rent was not included in the final Bill
  • Leasehold being abolished entirely
  • Abolishing the rules surrounding forfeiture and loss of equity upon breach of the lease

The removal of the proposal to cap or abolish ground rents was met with disappointment by leaseholders and continues to benefit freeholders – this is likely a result of the rush to gain Royal Assent. However, if you are a leaseholder wishing to extend your lease with over 150 years remaining, you will now have the option to buy out the ground rent. For some leaseholders, this will save money, but could cost in the future when a lease extension is carried out.

It is still unclear just when the Bill will become enforceable – government guidance released in April stated it is likely ‘the majority of the reforms will come into effect in 2025-2026’. The only assured provisions contained in the Bill that will come into effect are the amendments to the Building Safety Act 2022, and provisions around rent charge arrears – this will be from the 24th July 2024. However, the upcoming general election will affect when we can expect to see the reforms coming into practice.

Here is what to expect from each party, according to their manifestos:

  • Labour plan to continue leasehold reform with promises to abolish leasehold entirely, adopt proposals on enfranchisement, as well as addressing issues on high ground rent and maintenance costs.
  • The Conservatives have addressed the provisions cut out of the Bill and promise ground rent will be capped at £250 eventually leading to peppercorn rent, ending misuse of forfeiture and easier commonhold adoption.
  • The Liberal Democrats have also committed to abolishing residential leaseholds, and capping ground rents.

It is clear each party wishes to address the Act but it remains to be seen just how far the winning party will go, and how quickly this will be brought to force.

 

To find our more, contact our Residential Property team.