Introduction of Leasehold Reform Laws

When looking to buy a house, you’ll likely encounter the terms freehold and leasehold often. Quite simply, freehold means you own the property and the land that it has been built on for as long as you wish, whereas leasehold means to own the property itself for a set period of time, but you do not own the land it is built upon. However, it appears that leasehold will soon become a thing of the past here in the UK, as parliament is set to ban the creation of new leasehold houses. In this week’s article, we’ll go through the proposed reform laws and what homeowners can expect as a result of them.

In early November, the King’s Speech addressed some key points in relation to the leasehold reform bill, to give the public an initial idea of what we can expect as part of this bill. As part of the new Leasehold Reform bill, the government aims to:

Place a ban on the creation of new leasehold houses in England and Wales, which the government had previously announced its intention to end back in 2017, but it is now in the process of being formalised and processed into law. However, this bill will not be affecting leaseholds on flats. The CEO of HomeOwners Alliance commented that they were ‘disappointed that the government’s plans for leasehold reform […] still [allow] the sale and purchase of leasehold flats in the future’ and stated that they will continue to campaign for commonhold flats.

The process of extending your lease is expected to become simpler and more affordable for those with existing leases on houses and flats. Selling and buying a leasehold property is expected to become easier under the leasehold reform as timescales will be set for agents and freeholder to respond to leasehold queries and maximum fees. The bill is also set to discard the expectation that leaseholders will pay their freeholders’ legal costs when challenging any poor practice.

The standard lease extension is currently at 90 years, and the government plans to increase this to 990 years for both houses and flats. In addition to this, they intend to reduce ground rent to £0. The government initially planned to place a cap on ground rent, to reduce payments for inessential services, but with an open consultation taking place until the 21^st of December 2023, the government will now look to introduce this following these discussions.

Notably, the requirement to be a leaseholder for a minimum of two years to benefit from the leasehold reform changes is planned to be removed.

Transparency is a key part of the bill, particularly over leaseholders’ service charges. Also being addressed is building insurance commissions for letting and managing agents, landlords and freeholders, which is due to be replaced with more transparent admin fees. Access to redress schemes will also be extended to leaseholders, to enable them to challenge and report poor practise. Discussions with the Ombudsman will be taking place to help drive the programme of reform

There will be an expansion of the Building Safety Act 2022, to ensure that freeholders and developers cannot evade their responsibilities and liabilities of subsidising building remediation work.

Marriage value is another issue set to be tackled which has been a common concern for those with a lease of 80 years or less. Marriage value represents 50% of the increase in the market value of the property arising from the extension of the lease and is paid to the freeholder. Ridding of this charge could save them thousands of pounds, though there has been some hesitation from the government as they try to prevent angry freeholders looking for compensation as a result of losing this form of income.

There is no confirmed date yet, as to when this will be implemented into law, and with lots of stages of Parliament to pass through, it could take some time for it to come into effect. Additionally, a lot of the plans may not end up in the final bill, and it is a possibility that the bill will not pass before the next General Election which is why we encourage you to check in on our site as we’ll regularly report on this process and any changes you should be aware of.

Maya