Property Law Update #1: Leasehold and Freehold Reform Bill

Property Law Update #1: Leasehold and Freehold Reform Bill

As we move into the New Year, 2024 looks to bring several changes to the property sector. At the end of 2023, His Majesty the King announced a proposed ‘Leasehold and Freehold Reform Bill’ that the government says will ‘improve homeownership for millions of leaseholders in England and Wales’

Below we explore what these reforms may mean for these ‘millions of leaseholders’ on a practical level.

What is a leasehold property?

In simple terms, a leasehold property is a form of property holding in England and Wales whereby a lease is involved. The word ‘ownership’ may be unhelpful as a leaseholder is a ‘tenant’ who leases their property from a ‘freeholder’ or ‘landlord’. The lease will run for a term specified in the lease. The relationship, rights, and responsibilities of the leaseholder and freeholder will be governed by the lease.

Leaseholds are popular in flats and apartments where there is a need to maintain common parts of the overall building. It is typical for the building to be referred to as ‘the freehold’ whilst the flats may form part of the leasehold. Currently, houses can also be held as leaseholds.

If you own a leasehold property, you may need to get permission to do certain things in your home, for example, own a pet, make alterations, or sell the property. The freeholder (or an appointed management company/ agent) may charge a fee when you sell your home as well as charging you for information required during the conveyancing process (a management pack).

Leaseholders will usually have to pay a service charge which contributes to the maintenance of the overall property. There may be other charges and rents too and this will also be governed by the Lease. In some cases, ground rent may be payable.

What is changing?

As this bill has not yet been enacted, it is not yet known what the final provisions of the bill will be. However, the King’s Speech made clear the government’s intended reforms. Some of the changes are as follows:

1. A ban on the sale of new leasehold houses. Importantly, this reform would only impact houses and the sale of leasehold flats will continue as before. Additionally, the government has said that the sale of leasehold houses can continue in exceptional circumstances. As the majority of leasehold properties in England and Wales are flats, there may not be a large impact on the majority of homeowners.
2. An increase to the standard lease extension term. Currently, the standard lease extension term is 90 years for flats and 50 years for houses. The bill aims to make 990 years the standard term, with ground rent reduced to a peppercorn upon payment of a premium. A peppercorn means a ground rent with zero financial value.
3. Make buying or selling a leasehold property quicker and easier. As above, currently managing agents or freeholders may charge fees when you sell your home to provide certain information (known as management packs). The government aims to set a maximum fee for providing this information as well as setting a maximum time to deal with this.
4. Abolish the so-called ‘marriage value’ that sees lease extension as more expensive in the last 80 years of the term. Marriage value would be removed from the premium calculation.
5. Removing the 2-year requirement for new leaseholders. The proposals would see the requirement for new leaseholders to have 2 years of ownership before extending their lease or acquiring the freehold removed.
6. Requiring greater transparency over service charges. This seeks to make it easier for leaseholders to challenge their freeholder or managing agent over unreasonable charges.

Where can I get advice on leasehold properties?

Rix & Kay’s team of property lawyers can offer a range of services for both leasehold and freehold properties including sales, purchases, and lease extensions. For more information, reach out to Jordan Ismail via e. jordanismail@rixandkay.co.uk or t. 01732 441721, or contact any member of our Residential Property team