Are leasehold properties a thing of the past?
Maisie Bonfield 28-11-2023
For years, the UK’s Leasehold housing framework has been regarded as outdated and unfair towards leaseholders and the Government have been working to create a more balanced housing system.
What is a lease?
A lease is a legal arrangement where the owner of a property (called the freeholder) grants a leaseholder the right to live in a property for a certain number of years.
When the lease comes to an end, the leaseholder either has to pay the freeholder to extend the lease, or move out of the property.
Leaseholders often have to not only pay an initial purchase price for the lease, but they then have to also pay an annual ground rent charge, to allow them to stay in the property.
What are the problems with leases?
The Leasehold Reform (Ground Rent) Act 2022 was implemented to abolish ground rent for new leases, which had been liable to double every 5 years or so. This had been causing problems for leaseholders, who were finding that because their ground rents were so high, they could not obtain mortgages over their property. This in turn meant they were unable to sell their leases.
There have also been well publicised issues with fire safety and cladding in many leashold properties. The Building Safety Act 2022 introduced financial protection for leaseholders in relation to the costs associated with fire safety.
In the last decades, new homebuilders have tended to sell properties as leasehold rather than freehold, to ensure a stream of income after properties are sold. It has been generally considered to be unfair to leaseholders, that they have been unable to legally own the properties that they have bought and live in.
What are the proposals to reform leaseholds?
The Government have this week confirmed their intention to introduce further reform to leasehold properties, and will be introducing the Leasehold and Freehold Reform Bill in Parliament.
The Department for Levelling Up, Housing and Communities states that the Bill will “make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges. The Bill will also rebalance the legal costs regime and remove barriers for leaseholders to challenge their landlords’ unreasonable charges at Tribunal.”
To achieve this, the Bill is expected to include provisions to:-
- Make it easier and cheaper for homeowners to purchase the freehold of their property.
- Make it easier and cheaper for leaseholders to take over the management of the building and appoint their own managing agent.
- Increase the standard lease extension term from 90 to 990 years
- Ban the requirement for a leaseholder to have owned their interest for 2 years before exercising their statutory right to extend their lease.
- Ban the sale of new leasehold houses.
- Make it cheaper to exercise the collective right to purchase a freehold by enfranchisement.
- Extend access to redress schemes for leaseholders to challenge poor practice.
- Set a maximum time and fee for home buying and selling information.
- Scrap the provision for leaseholders to pay a freeholder’s legal costs when challenging poor practice.
- Replace current buildings insurance commissions with transparent and fair handling fees.
- Provide greater transparency on service charges – this will also apply to estate charges for freehold properties.
Until the Parliamentary process has completed, it is impossible to be certain as to whether the full list of proposed reforms will make it into law, but Government ministers have implied that they are confident that the Bill will be passed before the next election.
Is the law on ground rents changing too?
It is also reported that the Government has been consulting on options to cap ground rents for existing leases. This is expected to be met with mixed reactions.
Tenants paying high ground rents will benefit from the move as they will no longer have to pay ground rents and will not have problems obtaining mortgages for their properties. However, landlords with investments in the property sector are likely to argue that the proposals are an infringement of their legitimate property rights.