The Leasehold and Freehold Reform Bill has now been published further to the King’s Speech https://www.gov.uk/guidance/guide-to-the-leasehold-and-freehold-reform-bill
Limited information had been given as to its likely contents. What does it mean for leaseholders (house and flat owners) and their landlords?
- Marriage value is to be scrapped, meaning that those with less than 80 years of their lease to run stand to save a significant sum. This does not come as a surprise as we saw this alluded to in the calculations contained in the key facts issued after the King’s Speech.
- Ground rents above 0.1% of the freehold value will be ignored for the purpose of the premium calculation. This is designed to address ‘onerous’ ground rents by making it cheaper for leaseholders to buy them out.
- Rates are to be prescribed for calculating the premium in enfranchisement matters. Depending on where these are set and how flexible they are leaseholders stand to benefit.
- The term of extended leases is to be 990-years (this is currently 90 years for flats, and 50 years for houses) so there will be no need to extend more than once.
- A stand-alone right to buy out the ground rent without having to extend the term of the lease is to be introduced for leaseholders who already have very long leases.
- The two-year ownership requirement for a statutory lease extension is to be scrapped. For example therefore a flat buyer will no longer need their seller to commence the process for them to see through after completion – this will reduce costs for flat sellers and buyers alike and give buyers greater flexibility as to the timing to make a claim.
- Mixed use buildings will be brought into the ambit of the rights to acquire the freehold or management collectively where the ‘non-residential’ element is between 25 and 50%. Previously they were immune from this.
- Participation levels for collective freehold claims will be less of a worry for flat owners when considering funding non-participant’s share of the premium, as a right will be introduced for them to require their freeholder to take a ‘leaseback’ of any non-participating units. For example, if one of 10 flats were held on a very short lease so attracting a large element of premium, that element of the premium can now be avoided.
- Landlords will no longer be able to obtain reimbursement of their costs from leaseholders in enfranchisement and right to manage claims.
- The ‘no costs’ forum, the First-tier Tribunal (Property Chamber), is to be given jurisdiction to deal with a greater array of disputes. In addition to cost saving for leaseholders, the intention is to ensure that disputes are handled by judges with specialist knowledge.
It seems that leaseholders stand to significantly benefit while landlords suffer a corresponding reduction in income from enfranchisement claims, as well as suffering the cost of dealing with them where they were previously insulated to a degree.
Changes will also be introduced around service charges for leaseholders - as the Government’s factsheet explains these are designed to improve leaseholders’ consumer rights by:
"• Requiring transparency over leaseholders' service charges so that all leaseholders receive minimum key financial and non-financial information on a regular basis, including through a standardised service charge demand form and an annual report.
• Replacing buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees.
• Scrapping the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.
• Granting freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders by extending equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a Tribunal. “
Leaseholders and freeholders alike will no doubt take a keen interest in the passage of the Bill through the Houses of Parliament and the outcome of the consultation around capping ground rents. The legislation may well be challenged by freeholders.
Mark Vinall, Partner, Ashley Wilson
