What is the Leasehold Reform Bill and what does it mean for homeowners?

The leasehold reform bill is a proposed change to the law which, if passed, will alter some of the rules and regulations around leasehold properties.

When buying a home that’s leasehold, rather than owning the property and the land it’s built on outright, you buy the right to live in the property for a fixed number of years. And generally, you’ll need to pay ground rent and service charges throughout this time.

The intention of the proposed bill is to change how the leasehold system works, to give homeowners of leasehold properties greater rights and powers.

This week marks the sharing of the draft leasehold reform bill with parliament. This takes the bill one step closer to becoming law, as MPs are given the opportunity to vote on the bill.

If passed in its current form, the bill would mean changes to much of the existing legislation.

What is a leasehold property?

Before we get into the bill, let’s start by looking at the difference between leasehold and freehold.

When someone buys a freehold home, they own both the property and the land it sits on. And they’ll own it outright, for as long as they’re the legal owner. But this isn’t the case when buying a leasehold property.

With a leasehold purchase, the lease is the key to everything. The lease is an agreement that states how long you own the property before it is legally returned to the landlord (or freeholder). There will also be other terms outlined in your lease, such as the type of alterations you’re permitted to make to your home, how you and the freeholder will share costs for any maintenance work, and how much ground rent you owe.

Why are things changing?

Historically, many leaseholders have found themselves subject to costs from ground rent, lease extensions and service charge changes, and they’ve found it difficult to contest these issues. The ultimate aim of the legislation changes is to give leaseholders greater rights and increased protection.

What will the Leasehold and Freehold Reform Bill change?

If passed, the reforms will affect a few key areas of the leasing industry. These include:

Extending your lease or buying your freehold

The bill would make it less complex, cheaper and quicker to extend your lease, or buy your freehold.

Standard lease extension terms

Standard lease extension terms would increase to 990 years for houses and flats. This is up from 50 years for houses and 90 years for flats. Right now, it gets more expensive to renew a lease as they get closer to expiry – also known as the ‘marriage value’. And under the the existing bill, the marriage value would be scrapped.

Greater transparency over service charges

Freeholders or managing agents would need to issue bills in a standardised format, making the data easier for leaseholders to assess and challenge.

Removal of legal barriers

The reforms would also look to rebalance legal costs and make it easier for leaseholders to challenge landlords over unreasonable charges.

Leaseholders will no longer have to pay their freeholder’s costs when making a claim.

The introduction of the redress scheme

Managing agents are already required to belong to a redress scheme. Under the new rules, freeholders who manage their building directly will do as well. This means leaseholders can challenge them if needed.

Comprehensive rights of redress

Homeowners on private and mixed tenure estates would be granted comprehensive rights of redress. This means they’ll get more information about the charges they pay, and the ability to challenge how reasonable they are.

Greater rights to those in mixed-use blocks of flats

At the moment, leaseholders in these buildings can’t take over the management of the site or buy the freehold if more than 25% of its floor space is commercial. Under the bill, this figure would increase to 50%.

The scrapping of the two-year rule

The rule that leaseholders must own their house or flat for two years before they can extend their lease or buy their freehold would be removed.

No more new-build leaseholds (houses only)

The sale of new leasehold houses would be banned, so every new house in England and Wales would be freehold (except for in exceptional circumstances).

However, the Government has no plans to abolish new leaseholds on flats at this stage.

Are any other changes coming?

The Government will be looking at any ongoing amendments, and they will be looking at the much-debated issue around the capping of ground rents.

It’s mooted that some leaseholders are paying for unnecessary services, and the goal is to reduce ground rents to zero in most new leases in England and Wales.

However, working out how to enforce reasonable charges is complex, so the Government wants to consult on the issue. That consultation will close at 11.59pm on 21 December 2023. So it’s likely that tweaks to the reforms will be made as a result of this consultation period.

When will the Leasehold and Freehold Reform Bill become law?

Michael Gove has said he’s confident that the bill will be passed before the next General Election, which is predicted to come some time in 2024.

But there has been no announcement on when the new reforms will become law. And it’s worth noting that all the reforms put forward in this draft might not make it into the final bill – it will all depend on how MPs vote on the measures put forward.

Plus, it’s also important to remember that any future Government may not commit to these current recommendations.

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The header image for this article was provided courtesy of The Modern House, London.