Could major leasehold reforms be just beyond the horizon?

posted by daniel@lease-advice-bureau.co.uk
Date:  02/11/2023
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Ahead of the King’s Speech scheduled for the 7th November the Times has reported some insider predictions about both it and on the contents of the proposed Leasehold Reform bill as a whole.

Of course until it becomes law, much of this is highly speculative however we are nearing ever closer to seeing some reforms come to fruition, and as with most new law, the devil will be in the detail.

The following were the changes of note, some more ambiguous than others:-

  • An “overhaul” to the process of extending leases.
  • Giving more power to leaseholders to manage the building and service charges.
  • Making it easier and cheaper for people to buy their homes outright.
  • The statutory lease extension term increasing from the current 90 years, to an additional 990 years.
  • The removal of the current 2-year ownership requirement for statutory lease extension qualification.
  • The raising from 25% to 50% for the threshold exemption that applies to non-residential floor space for buildings to qualify for Right to Manage
  • The capping of existing ground rents to a peppercorn.

The penultimate point mirrors what has previously been proposed in relation to the qualification of buildings under Collective Enfranchisement under the 1993 Act and that this effectively brings the qualification in line with the Right of First Refusal threshold under the Landlord & Tenant Act 1987, which will certainly see an increase in the number of RTM and enfranchisement claims. Arguably, as ventured by Philip Rainey KC at a recent lecture, it renders Part I of the Right of First Refusal legislation rather redundant [paraphrased] since the requisite number of leaseholders, if so inclined, could then instigate their own claim no longer restricted by the presence of such large non-residential areas.

Secretary of State Michael Gove has commented that he intends to abolish the leasehold system in totality, describing it as an “unfair and outdated feudal system that needs to go” and it is believed that there are plans for the gradual phasing out of leasehold properties.

It appears the government will likely legislate to ensure that newly built houses can only be created as Freehold interests, although it is said that new flats could still be Leasehold. We can only speculate from previous reports that there may be the introduction of a route to transition leaseholds to a new Commonhold regime.

Rather surprising are the plans to “cap existing ground rents”, which feels somewhat similar the controversial plans to abolish Marriage Value (a factor necessary in the calculation of lease extension and freehold values where leases are below 80 years in length), as this has the effect of directly depriving Freeholders of a significant value in their assets, which some have argued infringes upon Human Rights law. A consultation process is planned to run alongside the bill.

More will be known upon the delivery of the King’s Speech which will hopefully shed more light on these plans.

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