What is the latest guidance on leasehold reform?

Manjit Rai, Solicitor in our Property Department discusses the latest guidance on Leasehold reform and what this could mean for the future.

Historically, leaseholders who own long residential leases (a long lease is one granted for a term of more than 21 years) have encountered multiple problems. These problems include ground rents, the cost of extending a lease or buying the freehold of their building and, obtaining a mortgage on a property with a low lease which in turn has affected sales/purchases of leasehold properties.

The Government have long recognised the problems and for years have intended to implement and modernise the residential leasehold system in England and Wales.

This article will look at the proposals, changes and what these mean for landlords, agents and leaseholders in England and Wales.

The Government Pledge

In December 2017, the Government announced plans to tackle the growing problems within the Leasehold Industry. In particular to limit ground rents on new leases. There was very slow progress, and it wasn’t until January 2021, that Robert Jenrick, the Housing Secretary, stated that leasehold reform would be tackled in a two-part legislative process.

On 7^th January 2021 the Government announced their pledge to bring in leasehold reforms, the commitment leasehold owners should feel secure in their ownership and be free to sell without the fear of obstacles during the conveyance process.

The First Phase

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30^th June 2022 and fulfils the Government’s commitment to set future Ground Rents to zero (in England and Wales) for new leases. This is the first part of a major two-part leasehold reform. The Act is intended to make home ownership fairer and more transparent for millions of future leaseholders. This is part of a wider package of leasehold reforms.

Key points to note about the Ground Rent Act 2022:

Ground Rent is abolished for:

• Any newly built leasehold residential properties.

• Those informally negotiating a lease extension with their landlord can retain the existing ground rent for the remainder of the original term. The important factor to note is that for the extended period, the ground rent must be reduced to a peppercorn.

• The Act will apply to Retirement Properties after April 2023

There are some exceptions that the Act will not apply to i.e. certain business leases, statutory lease extensions, a community house lease, a home finance plan lease.

There are Sanctions for non-compliance.

• if a landlord/agent demands ground rent which is in contravention of the Act. Any payment received must be returned within 28 days. Failure to do so could mean that the landlord could receive a fine which ranges from £500 to £30,000 per qualifying lease.

Phase 2 of the Leasehold Reform

On 20^th February 2023 Michael Gove, Secretary of State at the Department for Levelling Up, Housings and Communities, stated that he intends to abolish the ‘unfair and outdated feudal’ leasehold system. He suggests reform to the leasehold sector will be included in the next session of Parliament:

“We hope, in the forthcoming King’s Speech, to introduce legislation to fundamentally reform the system. Leaseholders, not just in this case but in so many other cases, are held to ransom by freeholders. We need to end this feudal form of tenure and ensure individuals have the right to enjoy their own property fully”.

What we can expect to be introduced in future legislation, during the phase two:

• The length of statutory leases to increase to 990 years for leasehold flats and houses (this is currently 90 years for flats and 50 for houses) and reducing the ground rent to a peppercorn. Giving both leasehold owners of flats and houses the same rights.

• Build on the Ground Rent Act and support for leaseholders to make home ownership cheaper, fairer, and more secure.

• Reform the valuation process by introducing an online calculator, creating substantial savings for leaseholders and also make sure sufficient compensation is paid to landlords to reflect their legitimate property interests

• Abolish Marriage Value

Given that leasehold reform has been slow and the King’s Speech has been delayed until Autumn 2023, there is currently no guarantee of what will be introduced and when. If you are intending on extending your lease or buying the freehold of your building, you should seek independent legal advice.

Taylor Rose has a dedicated team of Enfranchisement solicitors. If you would like to discuss a leasehold matter, whether you are intending to extend your lease or buy the freehold of the building, please can get in touch with our specialists.