In January 2023, Michael Gove, the Secretary of State for Levelling Up, Housing and Communities pledged to abolish leasehold ownership in England and Wales and to bring forward new legislation to replace that system. He described the leasehold system as requiring fundamental reform. That pledge was a threat, not a promise, as in May 2023 the plans were dropped following a battle between Downing Street and Mr Gove.
Fast forward six months to 7 November 2023 and the first King’s Speech for over 70 years opened what will be the final session of parliament before the next general election.
Part of the Speech was devoted to leasehold reform, in the guise of a ‘Leasehold and Freehold Reform Bill’ to apply in England and Wales. The stated intention of this bill is to “reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges”.
The key proposals concerning leasehold reform identified in the speech include:
◆ Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold;
◆ Increasing the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to £0;
◆ Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes;
◆ Increasing the 25% ‘non residential’ limit preventing leaseholders in mixed-use premises from buying their freehold or taking over management of their buildings; and
◆ Banning the creation of new lease-hold houses.
The speech contained a number of other proposals which impact on buying and selling leasehold property and cover a number of service charge issues. The briefing paper also announced another consultation on capping ground rents. That proposal was previously included in the government’s February 2021 policy statement without any meaningful progress being made on the issue since that point. It is likely that there will be strong opposition to any cap and there is no clear explanation of how landlords will be compensated (if at all), if any changes brought in substantially reduce their property asset values.
