The King’s Speech – What does this mean for the future of Leasehold Reform?

Most, if not all, practitioners agree that leasehold reform is fundamental, and the industry waited with bated breath today for the eagerly anticipated King’s Speech to shed some comprehensive light into the extent of those changes. What was announced, however, was the following vague snippet:

“My Ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold …”

Fortunately, the accompanying King’s Speech Briefing Note enlightens us somewhat on what is to be expected by way of reform. It is not limited to freeholds and does encapsulate the intentions to deliver the Government’s manifesto commitments on leasehold reform.[1]

In this article, leasehold enfranchisement property partner Katie Cohen outlines the proposed leasehold enfranchisement reforms contained within the new Bill.

The New Bill

The Leasehold and Freehold Reform Bill (“the Bill”) will “make the long-term and necessary changes to improve homeownership for millions of leaseholders in England and Wales by making it cheaper and easier for more leaseholders to extend their lease, buy their freehold, and take over management of their building.” The proposed Bill represents the second stage in reforms already introduced in the Leasehold Reform (Ground Rents) Act 2022, which put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales.

What does the Bill do?

The King’s Speech Briefing Note outlines the following:

• Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold.
• Increasing the statutory 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 so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.
• Increasing 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.
• Banning the creation of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.
• Consult on capping existing ground rents, to “ensure that all leaseholders are protected from making payments that require no service or benefit in return, have no requirement to be reasonable, and can cause issues when people want to sell their properties.” Subject to that consultation, a cap is likely to be introduced through this Bill.

Comment

Whilst the King’s Speech Briefing Note outlined a number of changes, there is no mention on abolishing marriage value, banning leasehold as a form of property ownership, commonhold or limiting recoverable statutory costs. Perhaps this will appear in the draft Bill? Commentators may well be disappointed with the “watered down” proposed Bill which seeks to reform the existing regime without any radical changes.

It is encouraging to see that the two-year ownership rule to qualify for a lease extension will be abolished, which is, of course, more in line with the leaseholder qualification procedure for collective enfranchisements.

Increasing the 25% current threshold to 50% for mixed-use buildings is also encouraging as this will enable more leaseholders to acquire their freeholds or take over the management.

The announcement of statutory lease extensions being for 990 years (instead of the current 90 years) is also beneficial and akin to a 999-year lease entitlement post-acquisition of the freehold.

Amongst the positive announcements, there is no doubt that the proposed consultation on capping ground rents for existing leases will be contentious and heavily debated. Interestingly, subject to the outcome of that consultation, the Government may put this forward into the new Bill.

Now the fun begins … how much time is there to turn this Bill into an Act?