The UK Government’s Leasehold and Freehold Reform Bill, unveiled in November 2023, is set to bring significant changes to property ownership in England and Wales.
As a solicitors firm in Sussex specialising in a wide range of residential and commercial property matters from conveyancing and probate to lasting power of attorney, the team at George Ide LLP has been closely monitoring the progress of this landmark piece of legislation.
The Bill aims to overhaul the complex leasehold system, which has long been criticised for unfair practices that disadvantage millions of homeowners. With the latest developments in Parliament, now is an opportune time to explore what these proposed reforms will mean for leaseholders, freeholders, and the broader private rental sector (PRS).
Extending Lease Terms and Enfranchisement
One of the Bill’s key provisions is the increase in standard lease lengths for both flats and houses. Previously, lease extensions were capped at 90 years for flats and 50 years for houses. The new legislation will align the treatment of both property types, allowing leaseholders to secure a 990-year lease extension at a nominal ground rent.
This dramatic increase, coupled with the elimination of the “marriage value” payment requirement and limiting future ground rent’s impact on valuations, suggests that lease extensions will become far more affordable and accessible for homeowners. Importantly, the two-year ownership rule for flat leaseholders wishing to extend will also be abolished.
Furthermore, the Bill grants house leaseholders the ability to purchase their freehold immediately upon acquiring the property, removing the previous two-year waiting period mandated by the Leasehold Reform Act 1967. These reforms significantly empower leaseholders and provide a clearer path to outright ownership.
Collective Enfranchisement and Mixed-Use Buildings
For leaseholders seeking to jointly purchase the freehold of their building, the Bill introduces favourable changes to the valuation method.
Like the lease extension process, the updated approach eliminates the “marriage value” requirement and caps the consideration of future ground rents at just 0.1% of the freehold’s value. This makes collective enfranchisement a more viable and affordable option.
Additionally, the threshold for eligibility in mixed-use buildings has been raised from 25% to 50% non-residential space. This opens the possibility of collective freehold acquisition to a greater number of leaseholders in properties with a significant commercial component.
Transparency and Dispute Resolution
Addressing long-standing concerns, the Bill mandates enhanced transparency around estate and service charge calculations and communication by freeholders.
Freeholders – either directly or via their management companies – will be required to provide detailed financial and non-financial information to leaseholders in a standardised format, including insurance details and annual reports. This empowers residents to better understand and challenge any unreasonable charges.
The legislation also extends similar rights regarding the transparency and reasonableness of estate charges to freehold homeowners, granting them the ability to contest these costs at a tribunal.
Restrictions on Building Insurance Commissions
Another area of reform focuses on the issue of building insurance. The Bill aims to curtail the practice of freeholders or managing agents earning commissions from arranging insurance policies for leaseholders. Going forward, these parties will be limited to transparent administration fees only, rather than profiting from potentially inflated premiums.
Ground Rent Consultation
While not yet finalised at the time of this writing, the Bill includes provisions for a consultation on the future of ground rents. Options under consideration range from establishing a peppercorn rate, setting a maximum financial value, capping rent as a percentage of the property value, reverting to the original lease value, or freezing current levels. The government’s final decision on this matter will be a crucial component of the reforms.
Currently, the Bill does not include a ban on leasehold property sales. However, expect to see more communication regarding this matter in the coming weeks.
Expert Property Law Advice
The Leasehold and Freehold Reform Bill is currently progressing through Parliament, having reached the Report Stage in the House of Commons in early 2024. At present, it is at the Committee Stage in the House of Lords, after which it will undergo a further Report Stage and Third Reading. Following a consideration of amendments, it will be enacted into law by Royal Assent, which is expected to take place by the summer. Although the Secretary of State will determine the specific implementation date.
As a leading law firm in the region, George Ide LLP is well-equipped to guide clients through the implications of this landmark legislation. Whether you’re a leaseholder seeking to understand how a sale of your property could impact the chain going forward, a freeholder with multiple investments navigating the changing landscape, or a property owner in a mixed-use building, our team can provide valuable insights and assistance.
For more information on how the Leasehold and Freehold Reform Bill may impact your situation, please don’t hesitate to contact the experts at George Ide LLP.
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