Leasehold and Freehold Reform Bill – Guide, Advantages & Key Dates
On 27 November 2023, the UK government unveiled the Leasehold and Freehold Reform Bill, marking a pivotal moment for England’s property landscape. With its progression through the House of Commons, including a Second Reading on 11 December 2023 and completion of the Committee Stage by 30 January 2024, the Bill is on its way to transforming the leasehold system.
What is the Leasehold and Freehold Reform Bill?
Described by the Department for Levelling Up as “the most significant reforms to the leasehold system for a generation,” this legislation aims to bolster the rights of the 5 million leaseholders across England, addressing critical issues for the 1.5 million leasehold houses and the broader Private Rented Sector (PRS), where 38% of properties—or 1.8 million of the 4.9 million in the PRS—are leasehold.
Anticipated to be enacted in 2024, the Bill promises comprehensive changes, including reforms on lease extensions, enfranchisement, service charges, and ground rent, signalling a major shift for freeholders and leaseholders alike.
This guide delves into the key aspects of the Leasehold and Freehold Reform Bill of 2023, outlining the significant changes ahead and what they mean for homeowners and the property sector in England.
When will the Leasehold and Freehold Bill be passed?
The Leasehold and Freehold Reform Bill is currently in the initial stages of the legislative process within both houses of Parliament, indicating it has a considerable path ahead before becoming law. The soonest it might be enacted is likely in the summer of 2024, with the specific implementation date to be determined by the Secretary of State through regulation.
Leasehold Reform Bill Update as of January 31, 2024
The Leasehold Reform Bill has been swiftly advancing through Parliament, demonstrating the Department for Levelling Up, Housing and Communities’ commitment to fast-tracking this significant piece of legislation.
Unlike the Renters Reform Bill, which saw a 5-month gap from introduction to Second Reading, the Leasehold Reform Bill moved to its Second Reading on 11 December 2023, just three weeks following its introduction to the House of Commons. This rapid progression underscores the urgency and importance placed on leasehold reform by the government.
As of the end of January 2024, the Committee Stage of the Bill has been completed, setting the stage for the Report Stage, anticipated to occur before the end of February. This pace reflects a determined effort to address the complexities of the leasehold system promptly.
During the Second Reading debate, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, passionately critiqued the current state of freeholds, suggesting they have strayed far from their intended role within the capitalist system and have instead become assets for foreign entities to exploit UK homeowners. This statement sparked a notable reaction from Angela Rayner, Deputy Leader of the Labour Party, who offered Gove a back-handed compliment for his frank assessment.
This update indicates a significant milestone in the journey of the Leasehold Reform Bill, promising to redefine homeownership and leasehold rights in England. As the Bill moves through Parliament, its developments are closely watched by stakeholders eager for reform that will empower leaseholders and reshape the housing market.
What is the next step for the Leasehold and Freehold Reform Bill?
The next step for the Leasehold and Freehold Reform Bill will be to reach the Report Stage where Members of Parliament will propose, discuss, and potentially vote on modifications and additional clauses to the Leasehold and Freehold Reform Bill.
Following the Report Stage, the Third Reading debate is typically conducted rather quickly.
After both Houses of Parliament have approved the Leasehold and Freehold Reform Bill, it officially becomes law upon receiving Royal Assent, which is then communicated to Parliament. At this point, it will be known as the Leasehold and Freehold Reform Act 2024.
What will be the advantages of the Leasehold & Freehold Reform Bill?
1. Leaseholders to receive extended lease terms for both flats and houses
Clauses 7 and 8 of the Bill provide a pathway for eligible leaseholders of both flats and houses to secure a 990-year lease extension at a nominal ground rent, thanks to a revised valuation method that benefits leaseholders more. This improvement stems from the Bill’s elimination of the “marriage value” payment requirement and the limitation of future ground rent’s impact on the valuation to 0.1% of the freehold’s value. Though not exactly nominal, this adjustment is a positive development for leaseholders.
Previously, lease extensions were capped at 90 years for flats and 50 years for houses. The Bill aligns the treatment of both types of properties.
Furthermore, Clause 1 abolishes the two-year ownership requirement for flat leaseholders wishing to extend their lease. It also allows house leaseholders to either extend their lease or purchase their freehold immediately upon acquiring the leasehold property.
2. Leaseholders can buy the freehold when purchasing the house
The Bill allows house leaseholders to purchase the freehold of their house immediately upon acquisition, eliminating the two-year waiting period mandated by the Leasehold Reform Act 1967.
3. Revised Valuation for Collective Enfranchisement
The Bill introduces specific changes to the valuation method for leaseholders looking to jointly purchase the freehold. Similar to lease extension reforms, the updated valuation eliminates the marriage value requirement and limits the consideration of future ground rents to 0.1% of the freehold value, making freehold acquisition more affordable for leaseholders.
4. Expanded Eligibility for Mixed-Use Buildings
The Bill raises the threshold for collective enfranchisement in mixed-use buildings from 25% to 50% non-residential space. This adjustment allows leaseholders in buildings with a significant commercial component more opportunity to collectively buy the freehold.
5. Enhanced Service Charge Transparency
Addressing a common concern among leaseholders, the Bill mandates greater clarity in how service charges are calculated and communicated by freeholders or their management companies. It prescribes a standardised format for service charge invoices. It necessitates regular provision of detailed financial and non-financial information, including insurance details and annual reports, to empower leaseholders to dispute unreasonable charges.
6. Estate Charge Transparency and Challenge Rights
The Bill extends rights regarding the transparency and reasonableness of estate charges to freehold house owners, akin to the rights afforded to leaseholders for service charges. This includes the ability to contest these charges at a Tribunal.
7. Reform of Building Insurance Costs
Highlighting the misuse of insurance commissions by freeholders, the Bill restricts managing agents to transparent administration fees for building insurance, eliminating commission earnings from arranging building insurance for leaseholders.
8. Ground Rent Consultation
Following a consultation launched on 9 November 2023 to explore methods for capping ground rents in existing leases, the government aims to decide on the most suitable approach to incorporate into the Bill. Options include setting a peppercorn rate, establishing a maximum financial value, capping rent as a percentage of the property value, reverting to the original lease value, or freezing current levels.
What doesn’t the Leasehold Reform Bill address (so far)?
Ban on Leasehold House Sales
Contrary to earlier promises and despite initial expectations, the Bill currently does not include a ban on the sale of leasehold houses. However, this measure is anticipated to be introduced at the Committee Stage, as confirmed by Michael Gove during the Second Reading debate.
Frequently Asked Questions (FAQs) about the Leasehold and Freehold Bill 2023
What is the purpose of the Leasehold and Freehold Reform Bill?
The bill aims to reform the leasehold system, enhancing rights and benefits for leaseholders across England.
When is the Leasehold and Freehold Reform Bill expected to be enacted?
It is anticipated to be enacted by the summer of 2024, with exact dates to be determined.
How does the Leasehold and Freehold Reform Bill affect lease extensions and ground rent?
It introduces the possibility of a 990-year lease extension at a nominal ground rent, among other reforms.* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*