As promised in November’s Kings Speech, the Leasehold and Freehold Reform Bill (“the Bill”) has now been laid before Parliament. Amongst other things, the Government has stated the aim of the Bill is to make it easier and cheaper for leaseholders to extend their leases and buy their freehold.
Many clients are asking what this bill means for them. In particular, leaseholders want to know if they should bring a lease extension or enfranchisement claim now, or if they should wait – a question which is very hard to answer and will differ depending on individual circumstances.
This article takes a brief look at the parliamentary road ahead for the Bill and suggests a few key points for clients to consider.
The long road ahead
The Bill still has a long way to go before it is becomes law. It has had its first and second reading in the House of Commons, but must now go through the committee stage, report stage and third reading the in Commons, before repeating the entire process from first to third reading in the House of Lords. At each stage amendments can be introduced, and we understand there are a number of amendments already drafted which will add further clauses to the Bill.
Once the Bill has reached the end of the process in the Lords, it goes back to the Commons to consider the amendments proposed by the Lords. Any amendments made by the Commons to those amendments then go back to the Lords, and so forth (a process appropriately termed “ping-pong”) until agreement is reached.
The Bill must reach the end of the process before Parliament is dissolved in the run up to the general election (which has to take place no later than 28 January 2025). Otherwise, the Bill is scrapped and must be reintroduced from scratch by the new Parliament. The Government seem to be committed to pushing it forward before the general election, but at this stage much is still unknown.
And even once the Bill has been agreed and reaches the statute books, there remains the question of when each part of the act will come into force – indeed, there are many sections of legislation which have never commenced. Additionally, in its current form, various clauses of the Bill refer to rates, caps and other details which are to be set out in regulations that will be written and enacted at some point in the future. The specific effect of those provisions cannot be fully known until those regulations have been made.
What to consider right now?
Given the journey the Bill still has to travel, and the many opportunities for amendments to be introduced, it is impossible to say exactly what will become law and when. However, many clients are understandably still searching for some guidance as to how the Bill should affect their decisions right now.
Here are a few considerations which may help clients as they work out a way forward.
- Remember the current law remains current until any new laws and amendments are in place and in force. For now, any statutory lease extension or enfranchisement claims must continue to follow the processes and requirements set out in the current iterations of the Leasehold Reform Act 1967 or Leasehold Reform Housing and Urban Development Act 1993. Deadlines must be adhered to, and the terms which are granted under the relevant acts must continue to follow those required by the current legislation. If something other than this is desired, then it may be worth considering negotiating a voluntary agreement between the landlord and leaseholder(s).
- Be cautious taking decisions based on the hope of future rights. The Bill extends the right to a lease extension and the right to enfranchise to leaseholders who do not currently qualify, as well as introducing new rights such as the right to vary the rent to a peppercorn without also extending the lease. However, until the Bill is enacted and these sections are in force, there is no guarantee those rights will materialise.
- Is there a reason that now is the right time to make a claim? The promise of cheaper lease extensions and freehold purchases is attractive, and if clients can wait then they may be able to benefit from this. Over time it will also become clearer when and how the law is likely to change. However, there are various reasons why a lease extension or freehold purchase claim may be urgent, and waiting may not be such an attractive option. For instance, the lease might be about to drop below 80-years remaining (the current threshold beyond which the premiums payable significantly increase, and mortgage lenders become significantly less willing to lend). Clients may be looking to sell the property or have particular reasons for wanting to remove the freeholder from the picture as soon as possible. Whilst the end result under new legislation may be preferable, the outcome is not currently guaranteed, and the potential benefits may not outweigh the risks of waiting.
- It is always worth taking specialist advice. Whilst lawyers and valuers will not be able to give definitive advice, they can help clients think through the considerations for their specific circumstances and consider the wider picture. Similarly, specialist valuers may have some views as to what effect the currently proposed changes might have for clients and may be able to suggest potential negotiation options.
At the end of the day, there is no one-size-fits-all answer. Until the Bill becomes law, it is ultimately a judgement call – with the help of specialist advisers, clients must gather what information they can and weigh that which is known against the risks and possibilities of that which is unknown.
Rachel Hardingham is a Solicitor in the Residential Team at Irwin Mitchell
