The Leasehold and Freehold Reform Bill was published on 27 November.
This was somewhat sooner than expected, and it is somewhat incomplete.
For example, the Bill does not contain a provision that bans the use of Leasehold for new-build Houses, however a government spokesperson has said “we will bring forward amendments as the bill progresses through parliament and that includes the ban on leasehold houses.”
What does the Leasehold and Freehold Reform Bill mean for leaseholders and landlords?
Here are the key changes:
- 990 year Leases.
Extended leases for both Houses and Flats will now have a term of 990 years, eliminating any future need for recurrent extensions.
- Abolition of Marriage Value
Marriage value will no longer be a factor inflating Lease Extension and Enfranchisement Purchaser Prices, this will benefit leaseholders with fewer than 80 years left on their lease. The introduction of the Bill contains a statement by Secretary of State Michael Gove stating that in his view the provisions of the bill are compatible with Human Rights law – which was the main grounds of argument in opposition for such changes.
- Onerous Ground rents disregarded
Ground rents above 0.1% of the freehold value will be disregarded for premium calculations for extensions and freehold purchases, making it cheaper for leaseholders to buy out onerous ground rents
- Rates will be set for calculating premiums in enfranchisement matters,
Likely benefiting leaseholders considering the promises to make it cheaper for Leaseholders. These deferment rate percentages will be highly impactful but it remains to be seen what percentage the government will fix these at.
- Buying out Ground Rents for leases over 150 years unexpired.
Leaseholders with long leases will have the right to buy out the ground rent without extending the lease term.
- The two-year ownership requirement for a statutory lease extension will be removed,
reducing costs and providing more flexibility for buyers.
- Mixed-use building now qualifying.
Mixed-use buildings will now be subject to the rights to acquire the freehold or management collectively if the non-residential element is between 25 and 50%. This widens the number of leaseholders who will be able to exercise those rights.
- Right to compel Landlord to take a Leaseback.
Flat owners will have the right to require their freeholder to take a “leaseback” of non-participating units, reducing their share of the premium when buying the Freehold. This accounted for a substantial deterrent is many such blocks, which will increase the number of Enfranchisement claims.
- Landlord’s costs restricted
Landlords will no longer be able to recover their costs from leaseholders in enfranchisement and right to manage claims.
- FTT wider jurisdiction
The First-tier Tribunal (Property Chamber) will have jurisdiction over a wider range of disputes, ensuring specialist knowledge and cost savings for leaseholders.
The provisions do indeed provide marked benefits to leaseholders with particular focus on Extensions and Freehold Purchases, both in the price payable, the terms, as well as expending the scope of qualification.
In still remains to be seen whether the bill will be passed by parliament in its current form, which as a matter course still needs to be approved by both Houses of Parliament.
Even if it does, which appears likely, there will be Developers and Landlords who are set to lose a substantial amount of money as a result of these changes and despite Michael Gove’s statements about the Bill not contravening Human Rights legislation, it would not be surprising to see such challenges made once the Act comes into force.
The Bill contains many other impacts that are also worthy of discussion. We shall provide a more in-depth breakdown in due course. In the meantime we welcome opinions on these reforms.