The King’s Speech: Leasehold Reform

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).