The government unsurprisingly confirmed leaseholder reforms in yesterday’s King’s Speech, including a new bill which will reform the housing market by making it cheaper and easier for leaseholders to buy their freehold and fight excessive service charges.

The leasehold and freehold reform bill delivers the government’s manifesto commitments on leasehold reform and will attempt to make the long-term and necessary changes to improve home ownership for millions of leaseholders.

This will be achieved by making it cheaper and easier for more leaseholders to extend their lease, buy their freehold, and take over management of their building.

The bill will hope to empower leaseholders, improve leaseholders’ consumer rights, and reform the leasehold market.

These reforms build on 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 King’s Speech also said that this would tackle the “exploitation of millions of homeowners through punitive service charges”.

Industry reaction

JLL’s Daniel Walmsley commented: “Announcements in today’s King’s Speech will be welcomed by residential leaseholders, but it falls short of some of the more sweeping reforms that previous statements and press releases had suggested.

“It makes sense for homeowners to have access to the best form of ownership available to them. These proposed changes are aimed at encouraging leaseholders to use these amended rights to achieve that whilst helping to reduce the number of problematic leaseholds, and the banning of new leasehold houses helps to ensure unnecessary leaseholds are no longer created.

“Following previous consultations and years of government announcements on leasehold reform, the proposals to increase the standard lease extension from 90 to 990 years and removal of the two-year ownership rule were anticipated, but surprisingly absent from proposed Leasehold and Freehold Bill, there is no mention of the expected abolition of marriage value for those leaseholders with under 80 years remaining on their lease, or the prescription of rates to be used in the valuation.

“The proposed reforms, as published in the King’s Speech briefing note today, appear to be tweaks to long-standing legislation which already enables owners of leasehold houses to buy their freehold outright, and flat owners have the right to extend their lease and automatically reduce their ground rent to a peppercorn as part of the process.

“Also, groups of leaseholders can collectively acquire the freehold in their block of flats and the proposals seek to widen rights to include buildings with up to 50% non-residential use, up from the existing 25% limit. Experienced landlords are well used to these existing legal rights and processes.

“The proposal to look at capping all ground rents is headline-grabbing and could represent a significant transfer in value away from landlords to leaseholders, however the announcement doesn’t give any indication on how this will be compensated. The forthcoming consultation will provide opportunity for comments and objections are likely to be robust.”

Lauren Fraser, senior associate, Charles Russell Speechlys, remarked: “Given the focus on reforms to leasehold in the lead up to the King’s Speech, the lack of detail we have seen today regarding the plans is surprising. This comes in the wake of recent proposals to ban leasehold houses which are not new at all, these commitments were announced 4 years ago by the Government, now simply being repackaged as new plans.

“These proposals are based on an underlying presumption that a radical overhaul of the system is required, which is an oversimplification of a very complex issue.  A proper analysis of the criticisms of the existing leasehold system should first be undertaken and if it is found that changes are required further regulation of the leasehold system could be implemented.

“Having said this, leasehold is already one of the most highly regulated areas of the law with many and varied protections for leaseholders and there are plans afoot to give similar protections to freehold owners in relation to estate management charges.  This begs the question as to whether Commonhold provides a solution to the perceived problems.”

John Stephenson, Partner at BBD Pitmans, commented: “The Government has been working to reform the “toxic” leasehold system for some years now and the proposed legislation will be welcome to both buyers and sellers.

“This news will be especially welcomed by those who own properties whose leases are or will soon fall below 80 years – as their properties will become easier to sell and mortgage given the proposal to change the standard lease extension entitlement from 90 to 990 years. I hope that the 2-year ownership condition will go too.

“Though not mentioned, it would be good to see measures capping all existing ground rents at a low or ‘peppercorn’ rate, with no periodic increases. This would address one of the worst abuses of the leasehold system: flats sold on a leasehold basis but with ground rents that continue to increase during the lease term to unsustainable levels.

“While the Leasehold Reform (Ground Rent) Act 2022 capped ground rent under any long residential lease granted after the Act came into force at effectively zero, it didn’t ease the pressure for anybody with an existing lease, and this would be a huge relief for anybody currently paying such ground rents.  I look forward to seeing the Bill and how it evolves (and it will evolve, such is the interest in the subject) during its consideration by Parliament.”

Rob Poole, director, Glide, part of Leaders Romans Group, stated: “Leasehold reform should be widely welcomed – specifically because the intention is to reform rather than replace leasehold.

“There has been a lot of noise around replacing leasehold with commonhold but this is unworkable on many levels. With commonhold for large blocks such as those that we manage, dispute resolution is so much more complicated because of the numbers involved, that many disputes may never be revolved. This would be compounded by the lack of a first tier tribunal.

“The government has already done a lot to make things fairer for leaseholders, such as changes to ground rents and the work with insurance commissions. This new Bill provides an opportunity to build on that.

“Similarly estate charges should come into focus more as some cases have seen rises in over 140% over the last four years. Homeowners have no mechanism to challenge estate charges in the way that leaseholders can challenge service charges at a Leasehold Valuation Tribunal. This runs the risk that estate charges could push homeowners into poverty in future years.

“The proposed lease extension is also welcome, because short leases delay sales, cause chains to break down and consequently contribute to the housing crisis.

“While I welcome improvement, I’m conscious that change does not necessary constitute improvement – it is vital that the Government considers all potential changes very carefully and consults widely.

Mark Chick, director of ALEP and partner at Bishop & Sewell LLP Solicitors, said: “The announcement of a Leasehold and Freehold Bill could bring good news for property valuers, conveyancers and the 4.9 million homeowners in England and Wales under with leases – or it could fuel confusion, cost and controversy.

“As the professional body for leasehold enfranchisement practitioners – surveyors, solicitors and barristers – we have been lobbying for, and supporting the Government in bringing forward change, for many years. At ALEP’s October conference, lawyers and property professionals polled said that they supported change: asked ‘In general, is the leasehold system in need of reform?’, 77.37% responded ‘yes’. The majority view of ALEP’s members, on behalf of the homeowners and landlords that they represent, is that leasehold reform is infinitely preferable to the alternative: outright abolition.”

“Extending leases to 990 years as has previously been proposed is an ‘easy win’ and will be welcomed by leaseholders. In valuation terms the cost is likely to be not that much more than the cost of a 90-year extension (absent any other valuation reforms) and therefore is a simple and effective reform that mean that once extended a lease will not need extending again.

“Whilst the long-term aim might well be to make all flats freehold or commonhold, at the moment it simply isn’t possible to make new flats freehold until the work necessary to make the existing system of commonhold fit for purpose is complete. The issues with the current system of commonhold are well documented and the Law Commission has made extensive recommendations as to what needs to be done to ‘reinvigorate’ commonhold.

“The government has set up the Commonhold Council to identify the work that needs to be done on this and in order to see an accelerated take up of commonhold, those who wish to push for this should direct their energy towards encouraging the government to make this happen.

On the proposal to cap existing ground rents at a “peppercorn” rate, he added: “This is one of the areas in which greater consideration of the detail is required: what is meant by ‘peppercorn’ rates?

“We anticipate that this will mean a cap on the level of a ground rent that can be collected, perhaps by reference to a fraction of the capital value of the property. While there are clear benefits in doing so, particularly for leaseholders with high or uncertain ground rents,  this could substantially reallocate wealth from freeholders to leaseholders. I wonder if the Government has fully considered the implication on private pensions, for example – many of which have considerable investment in ground rents. The political implications of this (specifically among the PM’s own party) could be considerable.”

John Stephenson, a Partner at the law firm BDB Pitmans, added: “The proposed legislation will prevent residential developers selling houses on a leasehold basis – something most reputable developers have already stopped. The Government’s estimates suggest that just 1% of new houses are sold on a leasehold basis, down from 15% in 2016, and with ground rents capped at a peppercorn on new builds since June last year. It is a classic case of shutting the stable door after the horse has bolted.

“The legislation is disappointing for those already owning a leasehold house. Unless they can afford to buy the freehold and thus extinguish the ground rent – which can be expensive – they may find themselves continuing to pay ground rent.

“That rate will be capped but the legislation is unclear at what rate and the Government may find itself having to compensate the owners of those ground rents. A consultation will follow shortly, but there is a very real risk legislation will fail to get onto the statute books before the end of this government’s term. There is no short-term respite.

“Flat owners – who make up 70% of the new homes market – can be forgiven for feeling short-changed. Whilst legislation will make it possible to extend their lease from the 90 years as now to 990 years and without having to wait for two years after purchase, they will see no other changes to their leasehold arrangements and many of the Law Commission’s recommendations, such as the abolition of marriage value, have been shelved, perhaps on Human Rights Act grounds.

“The promises of fundamental reform to the leasehold system appears to have lost much of its impetus, and that will disappoint all leasehold homeowners.”

The likely impact of a new Leasehold Bill