Still a long way to go for leasehold reform – Lucy Barber writes for EG
9 December 2024
News
Lucy Barber, Head of Residential Property, writes for EG on the latest update on the Leasehold and Freehold Reform Act 2024, and comments on how complex the task of reforming the enfranchisement industry will be.
The 2024 Act was sped through legislation in the wake of Rishi Sunak calling for General Election in July, but now “serious flaws” are being highlighted, requiring additional primary legislation before they can be implemented. The Government has prioritised elements of the Act that relate to building safety measures, leaving leaseholders waiting a little (or a lot) longer for the reforms they have been anticipating. The two year rule is set to be scrapped in January 2025, although this has not been considered much of a hindrance, however all else is subject to further consultation. This includes the Act’s ban on building insurance renumeration, and the Act’s provisions on service charges and legal costs, and the valuation rates used for calculating enfranchisement premiums.
The enfranchisement industry, a sector largely on pause for years, would benefit from a prompt decision on the valuation issues within the Act, including changes to deferment rates and capitalisation rates. However, these issues will not be looked at until the “serious flaws” in the Act are fixed. Unless they simply resolve to scrap the proposals to change the valuation basis of lease extensions, the industry will continue to wait in limbo and in addition challenges to the Act have now been initiated using the Human Rights Act 1988 which may delay things further.
As well as the discourse the current Act, the Government has recommitted to publishing a new draft Leasehold and Commonhold Reform Bill in the second half of 2025. The Bill is to be focussed on reinvigoration of commonhold through a comprehensive new legal framework. This would, however, bring changes to mortgages, insurance, conveyancing, and property management. Furthermore, flat owners will be compelled under these commonhold proposals to be the owners of the building and, as such, take on the responsibilities associated under the Building Safety Act 2022, amongst other ownership duties.
“For now, the position is still uncertain, the timing is uncertain and the eventual drafting of the legislation is uncertain. Leaseholders and freeholders are in the same position they have been in for many years. There are no quick and easy answers to any of the issues that have slowed up the legislation to date; if there were we would no doubt be a lot further forward.”
Forsters shortlisted for ‘Solicitors Firm of the Year’ at the 2024 ERMAs
30 May 2024
News
We received the exciting news today that Forsters has been shortlisted as a finalist in the ‘Solicitors Firm of the Year’ category at the News on the Block Enfranchisement and Right to Manage Awards 2024.
Celebrating its 15th anniversary, we are delighted to participate and be recognised in this prestigious awards ceremony. Well done to our Enfranchisement Team in securing this shortlisting, and good luck to all the other finalists.
We look forward to the award ceremony, and celebrating the excellence in our industry, on 11 July at Leonardo Royal Hotel, St. Paul’s.
On 24 May 2024, the Leasehold and Freehold Reform Act (the “Act”) was the last act passed in the current Parliament, and, quite possibly, by this Government. It was pushed through the Commons at speed to ensure it received Royal Assent before Parliament was prorogued. The debate of the House of Lords amendments started at 19:21 and 11 minutes later all 67 amendments were passed. Parliament was prorogued at 20:46.
It is striking that the Act grew from 65 clauses and 8 schedules to 124 clauses and 13 schedules during its passage through Parliament. That speaks to the complex and technical nature of the matter area; but equally raises questions about the scrutiny those amendments received.
In the course of the debate, Sir Peter Bottomly praised Michael Gove for “getting a grip of the horrors in residential leasehold.” However, it remains to be seen whether the Leasehold and Freehold Reform Act and indeed Michael Gove’s legacy will stand the test of time. The new Act’s journey into the statute book has obvious parallels with the Landlord and Tenant Act 1987. The 1987 Act was also rushed through by a Conservative government three days before the dissolution of Parliament in the build up to the General Election of that year. It is widely regarded as one of the worst examples of legislative drafting and has a resulted in significant amounts of often unnecessary litigation for tenants and landlords alike. Unfortunately, there is scope for the new Act to go the same way.
Much of the commentary so far has focused on what is not in the Act. Michael Gove’s plan to remove ground rent for existing leaseholders or cap it at £250 was the most high-profile absentee. However, the ban on forfeiture of long residential leases and the introduction of commonhold also ended up on the cutting floor.
So what now? The Act is, of course, not yet in force. The parts of the Act that amend the Building Safety Act 2022, and deal with rent charge arrears, will become law on 24 July 2024. The remainder of the Act (including the 990 year lease extension, the new ‘standard valuation method’ (which will make it less costly for leaseholders to extend their lease or buy the freehold), the tenant’s right to buy out its rent, the ban on leasehold houses and the changes to service charge demands to make them more transparent) will be commenced by the Secretary of State via statutory instrument.
As Parliament is now in purdah, this responsibility will fall to the next government. The question of how the deferment and capitalisation rate should be fixed is complicated, politically charged and is highly likely to result in a human rights challenge. However, given the broad cross-party support for the Act, there is little doubt that the next government will grasp the nettle and bring the Act into force. When exactly this will be is anyone’s guess. Perhaps the most realistic guide is Baroness Scott’s 1 April 2024 written response, which estimated that the majority of the reforms would come into effect during 2025-2026.
In the interim, the leasehold enfranchisement industry remains in purgatory, although we now at least have an Act. For now, all we can do is work together to ensure that the new legislative landscape is understood as clearly as possible, so we are ready for the new Act when it becomes law.
The Department of Levelling Up Housing and Communities estimates that there are around 4.98 million leasehold homes in England, making up a significant proportion of all residential housing. Impacting on the lives of so many, leasehold ownership has therefore been the subject of much debate over the years.
The existing law allows leaseholders of residential properties to purchase the freehold and/or extend the leases of their houses or flats. However, these rights have been developed piecemeal, and are the product of over 50 Acts of Parliament, totalling 450+ pages of legislation. Unsurprisingly therefore, the system has been criticised as inconsistent and unnecessarily complex, often leading to protracted and expensive legal proceedings.
There was a lot of speculation as to what leasehold reform proposals might be included in the King’s Speech and so enfranchisement practitioners waited with bated breath.
Unfortunately, it was an anti-climax! With the King saying only:
“My Ministers will bring forward a Bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of home owners through punitive service charges”.
The background briefing note confirmed that a Leasehold and Reform Bill would be introduced to “put the country on the right path for the future by giving homeowners a fairer deal in the following ways”:
Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold. It is difficult to tell whether this is a proposal in itself (with further detail perhaps to follow in the draft Bill) or whether this is simply a reminder of the government’s overriding objective i.e. with the proposals that follow being the way in which the government intends to fulfil this promise. The latter is probably more likely, otherwise this proposal is frustratingly vague.
An increase to the standard lease extension term from 90 years to 990 years for both houses and flats (with ground rent reduced to £0, which is of course, already the case) – this was included in the February 2021 policy statement so was no surprise.
Removal of the 2-year ownership rule currently required for statutory lease extensions and freehold house purchases/lease extensions – again, this was included in the February 2021 policy statement and so is not controversial.
A ban on the creation of new leasehold houses. This was a manifesto commitment by the Conservatives at the last general election so is not a surprising announcement, but the impact of this is now likely to be minimal. Since the Leasehold Reform (Ground Rent) Act 2022 came into force, the number of houses being sold on a leasehold basis is very small.
Increasing the 25% ‘non-residential’ limit to 50% for freehold and right to manage claims. This was the subject of a government consultation in January 2022 but to date, there had been no government response and so it feels a little surprising that this has made it through.
These proposals all seem like easy wins, which are designed to grab the headlines! So, one would be forgiven for thinking that, despite all the hype, the government has simply paid lip service to the promise of far-reaching reform.
That said, the last of the proposals is rather more far-reaching and that is the proposed consultation on capping all existing ground rents. This was included in the government’s February 2021 policy statement – but there, the proposal was for ground rents to be capped at no more than 0.1% of freehold value. Given the difficult political arena and the need to find a balance between the competing interests of leaseholders and landlords, it is difficult to see this going through without a strong challenge, even with consultation.
The argument will be over what compensation is to be offered to landlords and whether there is to be a statutory acquisition process. A number of funds, which quite possibly form part of pension funds, own large ground rent portfolios and this value cannot simply be wiped out.
Almost as interesting as the proposals that were included in the Speech, were the proposals that weren’t! Most particularly:
The proposed abolition of marriage value. This was one of the most controversial of the proposed measures and so it is perhaps not surprising that it did not feature in the Kings Speech. Having said that, it was included in the government’s February 2021 policy statement and was also widely trailed in other recent ministerial briefings, so the omission does seem slightly odd.
The prescription of capitalisation and deferment rates and the introduction of a calculator to determine the enfranchisement price were also omitted. These seem to have fallen off the government’s radar. Perhaps because the task of balancing the contradictory agendas of both leaseholders and landlords is too tricky?!
Finally, and as predicted, the gradual phasing out of leasehold properties and the phasing in of commonhold as an alternative form of ownership for flats was not mentioned either. This is most likely because of the enormous cultural shift which it would require, which is not something that could be achieved overnight.
Overall, a bit of a damp squib! Of course, the devil will be in the detail and until we see the draft Bill, it would be foolish to think that anything is either on or off the table. There does seem to be a general trend for the enactment of primary legislation or enabling legislation though, with the detail being determined later in Regulations and so the fear is, that this may be the way the proposed Leasehold and Freehold Bill will be drafted.
Also, there will certainly be attempts by the very effective leaseholder lobby, during the passage of the Bill, to add all sorts of other things, of which the “abolition” of marriage value will undoubtably be one. In addition, there is already talk about a back-bencher revolt over the failure to include a ban on the sale of new leasehold flats.
Unfortunately therefore, for the enfranchisement industry, it’s yet another case of having to watch this space…
Caroline’s comments have also featured in articles published by Estates Gazette (found here), Inside Housing (found here), and BE News (found here).
Forsters shortlisted in two categories at the Enfranchisement and Right to Manage Awards 2023
20 June 2023
News
Forsters is delighted to have been shortlisted in two categories for the upcoming Enfranchisement and Right to Manage Awards.
The firm has been shortlisted in the Solicitors Firm of the Year category and Property Litigation Senior Associate, Caroline Wild has been shortlisted as a finalist in the Solicitor of the Year category.
The Enfranchisement and Right to Manage Awards, now in its 14th year, recognises and celebrates excellence in the leasehold enfranchisement and right to manage sector. Forsters Enfranchisement team, a specialist group of property litigation and residential property lawyers, has developed a formidable reputation in this niche and complex area of law. This shortlisting further bolsters the teams position as market leaders in this field, after recent success in acting for the Ministry of Defence, successfully defending the claims brought by Annington Homes regarding military service family accommodation.
The awards ceremony will take place on 6th July and the full list of finalists can be found here.