As expected the King’s Speech has revealed the Government’s plans for leasehold reform in the form of the Leasehold and Freehold Reform Bill.
In his speech the King announced that “My Ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges.” Leaseholders extending their lease or taking over the management of their building are also to benefit.
These reforms follow the introduction of the Leasehold Reform (Ground Rents) Act 2022, which put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales.
The speech contained some surprises:
- A consultation is to be undertaken around effectively rewriting existing leases to remove the obligation to pay ground rent (by capping it at a peppercorn). If capping is introduced it could have a large downward effect on the premium payable, i.e. for a new lease.
- The proposal to scrap Marriage Value seemed itself to have been scrapped as there was no mention of this in the speech itself. However the detail then issued around this included (in the section ‘key facts’) a worked example that implies that this change is to be made - for a £250,000 flat purchase held on a 76 year lease the premium to extend would fall from C £16,000 to C £9,000. It also states that the landlord would no longer be entitled to recover any of their costs.
It is interesting to note that besides the consultation around capping ground rent and the buried reference to marriage value being scrapped there was no mention of implementing any of the other Law Commission’s options for changing the basis upon which the premium payable by leaseholders is calculated so as to reduce the premium payable.
Other changes to be introduced by the Bill follow the Law Commission’s recommendations:
- Lease extension length – this is to be increased to 990 years from 90 years as expected.
- Process improvements – changes are to be made to make it easier and cheaper for leaseholders of houses and flats to extend their lease or buy their freehold.
- Qualifying two-year period of ownership for lease extension and house claims – this is to be removed. So flat buyers would no longer need their seller to commence the process for them.
- Expansion of the right to manage and to acquire the freehold collectively where building contains non-residential parts - to bring more buildings within the ambit of these rights the cut off from entitlement will be set at 50% non-residential instead of the current 25%.
- Landlord’s costs - the above example implies these will no longer be recoverable.
This implies that the Law Commission’s other recommendations are to be implemented. For summaries of these see https://ashleywilson.co.uk/blog/23/buying-your-freehold-or-extending-your-lease and https://ashleywilson.co.uk/blog/24/right-to-manage
For more detail see https://ashleywilson.co.uk/blog/13/reforms-around-lease-extension-and-freehold-enfranchisement and https://ashelywilson.co.uk/blog/19/law-commission-recommendations-to-reform-the-right-to-manage
Other changes to be introduced by the Bill are:
- Management information needed to sell – time and fee limits are to be imposed on landlords for the provision of management information required by flat buyers so assisting flat Owners when they come to sell.
- Buildings, insurance commissions – transparent, administration fees are to replace commissions.
- Redress schemes – more freeholders will be required to belong to a redress scheme.
- Rentcharges payable by freehold house owners – these house owners are to benefit from equivalent rights to those leaseholders currently enjoy around transparency of estate charges, access to redress schemes and to challenge charges.
- Building safety act 2022 – the existing legislation is to be developed to extend measures to ensure it operates as intended.
- Leasehold houses – these are to be banned, save in exceptional circumstances in England and Wales.
The detail around these proposals is awaited. It remains to be seen how these proposals develop on their journey through the Houses of Parliament and whether the timing of the election will affect the form and enactment of any legislation.