The King’s Speech – Leasehold Reform
Government proposals for leasehold reform
The King’s Speech on 7 November briefly touched on the long-awaited leasehold reforms by promising to make it “cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges”.
The briefing notes provide some further detail on the Government’s proposals which will be introduced by the Leasehold and Freehold Bill (“the Bill”):
Making it cheaper and easier for leaseholders to extend their leases, buy their freehold and take over management of their building. There is no further detail on how this will be achieved. Previously, the Government announced an intention to scrap marriage value, but it is not mentioned in the briefing notes and we will have to wait for the first draft of the Bill to see the Government’s plan for this. The briefing notes also seem to suggest that the leaseholders will only pay their own costs for a lease extension or collective enfranchisement claim. Landlords will seemingly have to pay their own costs for legal and valuation fees. This is not in keeping with other legislation surrounding compulsory acquisitions such as the Leasehold Reform Act 1967 and it will be interesting to see if the Government intends to mirror these changes in other legislation.
Increasing the term of a lease extension from an additional 90 years to 990 years. This is a positive for leaseholders who will not have to carry out multiple lease extensions for the same property. It does raise the question of how a longer lease extension will be cheaper than the current 90 year extensions.
Removing the requirement to own a flat for 2 years before bringing a lease extension claim. In reality, most leaseholders are not prohibited by this requirement anyway due to the ability to assign the benefit of lease extension claim (made by the seller) in the context of a purchase of a flat.
Increasing the 25% “non-residential” limit for mixed use buildings to 50% which will allow more leaseholders to bring a claim to buy their freehold or acquire the right to manage their building.
Banning the creation of leasehold houses (save for in extraordinary circumstances). As very few houses are leasehold this will not have a huge impact. It does however, raise the question as to what will happen to existing leasehold houses and whether a mechanism will be introduced for those leases to be brought to an end. There is also likely to be argument (and possibly litigation) on the definition of a “House”.
Transparency around service charges and buildings insurance commissions. This will be appreciated by all leaseholders, but further detail is required to understand how this will be achieved.
The briefing note confirms that the Government will be consulting on capping existing ground rents and if they intend to make this law, it will be featured in the Bill. There will be 5 proposals considered as part of the consultation. These are:
setting ground rents at a peppercorn
putting in place a maximum financial value which ground rents could never exceed
capping ground rents at a percentage of the property value
limiting ground rent in existing leases to the original amount when the lease was granted
freezing ground rent at current levels
It is important to note that these are only the Government’s proposals and it is not clear whether the proposals will become law, and if they do, when they will be implemented. It is also likely that the proposals will change after the first draft of the Bill is debated in parliament.
The PLE department is happy to advise landlords and leaseholders in relation to the above proposals.
