Adam Davis is based in Leeds as a partner in the residential leasehold law team at Coole Bevis LLP. Adam provides insights into the leasehold and freehold reform bill, exploring the proposed reforms and the potential impact they will have on leaseholders and freeholders.
What is the leasehold and freehold reform bill?
The leasehold and freehold reform bill (“the bill”) is the second part of a legislative package intended to reform the area of leasehold law. It follows the leasehold reform (ground rent) act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales.
Why is it being introduced?
In 2017 the government pledged to protect homeowners from “feudal” leasehold practices and announced its commitment to “tackling unfair practices in the leasehold market”. As part of this initiative, the government launched a consultation process aimed at establishing the most practical measures to, as they put it, “improve consumer choice and fairness in leasehold”. The consultation received over 6,000 responses, and consequently the government committed to legislate on a range of areas identified within those responses. The bill therefore, following the implementation of the leasehold reform (ground rent) act 2022, represents the culmination of the government’s stated commitment to bring about leasehold reform.
In a nutshell, or a ‘peppercorn‘ if you prefer (ba-dum), a major objective of the bill is to make it cheaper and easier for leaseholders of both houses and flats, to extend their leases or to buy their freehold. It also aims to impose greater regulation on matters such as service charges, costs and management, whilst seeking to increase leaseholder eligibility for building safety protections.
What’s currently in the bill?
Some of the main provisions in the current form of the bill, designed to deliver the above objectives, include:
- Increasing the standard lease extension term for both flats and houses to 990 years, at a peppercorn ground rent. Previously, the maximum permissible term for lease extensions of flats and houses was 90 and 50 years respectively.
- Removing the minimum two-year ownership requirement for leaseholders of flats who wish to extend their lease. Similarly, it will enable leaseholders of houses to extend their lease or buy their freehold as soon as they purchase, instead of having to satisfy the current two-year ownership requirement.
- Introducing an outright ban on the grant and/or assignment of ‘certain’ long residential leases on houses.
- Capping the treatment of ground rents at 0.1% of the market value of the freehold interest for the purposes of calculating the premium payable for lease extensions and freehold purchases, thereby (theoretically) resulting in cheaper premiums.
- Increasing the eligibility of leaseholders within mixed-use buildings to enfranchise. Leaseholders are currently unable to enfranchise if more than 25% of their building floorspace is for non-residential use. However, The bill will increase this threshold to 50%.
What may be introduced to the bill?
The government recently published an amendment paper which listed all tabled amendments to the bill from the time of its introduction. These proposals, whilst subject to further consideration, could therefore still be incorporated into the final version of the bill and some of the more significant amendments include:
- A provision to abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
- A new clause giving the secretary of state the power to bring “non-qualifying” leaseholders within the scope of the protections of the building safety act 2022 (“the BSA”), in addition to the power to bring buildings under 11m in height (or less than four storeys) within the shelter of the BSA provisions.
- Imposing an obligation on the secretary of state to, “have regard to the desirability of encouraging leaseholders to extend their lease at the lowest possible cost” when determining the applicable deferment rates,used within the valuation process.