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An introduction to the Leasehold and Reform Bill

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14th December 2023

What’s coming down the road?

 

1. The Leasehold and Freehold Reform Bill was published and received its first reading in the House of Commons on 27 November 2023. The second reading is scheduled for 11 December 2023.
2. Tanfield Chambers is publishing a series of briefing papers on various aspects of the Bill. The intention is to let lawyers, leaseholders, landlords, property managers and their advisors know what is coming down the road, from a legal perspective.
3. The Bill includes some 65 clauses and 8 schedules and runs to some 133 printed pages of new legislation. There are over a dozen regulation-making powers, which will undoubtedly lead to further subsidiary legislation. At least one important area (abolition of ground rents) has been postponed until a further consultation has been completed, and one other key pledge will be added in at a later stage. The Bill introduces changes to the leasehold enfranchisement of flats and houses, service charges and management of leasehold properties, ground rents, the right to manage and estate charges paid by residential freehold property owners.
4. Publication of the Bill was accompanied by Guidance from the Department for Levelling Up, Housing and Communities (Guide to the Leasehold and Freehold Reform Bill[1]), press releases and ministerial interviews. The Guidance suggests the objective is to deliver the following changes to the residential leasehold property sector[2]:

• Increase the standard lease extension term for houses and flats to 990-years(up from 90 years in flats, and 50 years in houses), with ground rent reduced to a peppercorn (zero financial value) upon payment of a premium. This will make sure that leaseholders can enjoy secure, ground rent-free ownership of their properties for years to come, without the hassle and expense of repeated lease extensions.
• Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.
• Remove the requirement for a new leaseholder to have owned their house or flat for 2 years before they can benefit from these changes– so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.
• Increase the 25% ‘non-residential’ limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices, from buying their freehold or taking over management of their buildings– to allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management.
• Make buying or selling a leasehold property quicker and easierby setting a maximum time and fee for the provision of information required to make a sale (such as building insurance or financial records) to a leaseholder by their freeholder (known as ‘landlords’).
• Require transparency over leaseholders’ service charges– so all leaseholders receive better transparency over the costs they are being charged by their freeholder or managing agent in a standardised comparable format and can scrutinise and better challenge them if they are unreasonable.
• Replace buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees– to stop leaseholders being charged exorbitant, opaque commissions on top of their premiums.
• Extend access to “redress” schemes for leaseholders to challenge poor practice.We will require freeholders who manage their property to belong to a redress scheme so leaseholders can challenge them if needed.
• Scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.
• Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders– by extending equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders.
• Build on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work– protecting leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended.
• Ban the sale of new leasehold housesso that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.

Inevitably, the Guidance and press coverage alone do not provide a comprehensive picture of the numerous provisions in the Bill. There is much, much more in the Bill itself. Indeed, in some cases the proposals seem to be different from the reforms summarised above.

5. The Tanfield Legislation Briefs seek to analyse the provisions of the Bill in detail – and where possible cover the origins the various proposals. They will be supplemented by updates tracking the amendments and refinements to the original provisions, as the Bill makes its way through its various stages the House of Commons and House of Lords. It is hoped that by the time the Act receives Royal Assent, the Legislation Briefs will provide an up to the minute guide to the new legislation.
6. The Legislation Briefs will deal with the Bill’s various clauses in thematic rather than chronological order. They will start with leasehold management (rather than leasehold enfranchisement or freehold reform), since this probably affects more consumers than anything else.

 

[1] The precise status of the Guidance is unclear. But it is unlikely to be admissible as an aid to interpretation of any ambiguous provisions under Pepper v Hart [1993] AC 593.rules.

[2] Although at least one of these changes applies to freehold houses.

 

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