Leasehold and Commonhold Reform Bill
Written 21st November 2024
Autumn brings a front of cold news for leaseholders, as the UK Government's latest announcements on leasehold reform have left millions feeling disheartened. The long-anticipated overhaul of leasehold property law, which once promised to simplify and alleviate the struggles of leaseholders, now appears indefinitely delayed. While the Leasehold and Freehold Reform Act 2024 technically remains in effect, its progress has been overshadowed by the newly proposed Leasehold and Commonhold Reform Bill. This development, unveiled by Housing Minister Matthew Pennycook on 21 November 2024, signals a significant shift in legislative priorities, with the most critical provisions of the 2024 Act effectively shelved for the foreseeable future.
The Immediate Changes: Removal of the Two-Year Rule
The only confirmed change to take effect soon is the abolition of the two-year qualifying period for lease extensions, slated for January 2025. This means leaseholders will no longer have to wait two years after purchasing their property to extend their lease or acquire their freehold. While this is a welcome reform, it is merely a fraction of the sweeping changes anticipated under the 2024 Act.
Key provisions, such as the right to extend leases to 990 years (up from 90), the removal of marriage value, and capping ground rents at 0.1% of the property value, remain in legislative limbo. Without these measures, leaseholders continue to face financial uncertainty and, in some cases, punitive charges that undermine the very notion of homeownership.
A Complex Legislative Landscape
The Leasehold and Freehold Reform Act 2024 introduced reforms addressing some issues, such as unsafe building remediation costs and the expansion of the Right to Manage (RTM) to include mixed-use buildings with up to 50% non-residential floorspace. However, flaws in the Act, such as loopholes that compromise valuation reforms and the exclusion of shared ownership leaseholders from 990-year extensions, require additional primary legislation to rectify. As such, the Government has opted to defer many of the Act's provisions, citing the need for "watertight" implementation.
This cautious approach has its merits, given the complexity of leasehold law. However, the protracted timeline and lack of clarity regarding key reforms have left many leaseholders frustrated. For example, consultations on valuation rates used to calculate enfranchisement premiums are not set to begin until next summer, pushing potential implementation further into the future. The omission of concrete timelines for reforms such as marriage value abolition and freeholders bearing their own legal costs only deepens the uncertainty.
The Push for Commonhold
A significant shift in the Government's focus is the push to make commonhold the default tenure in the UK. Commonhold, a tenure system that allows flat owners to collectively own and manage their building without a freeholder, has long been touted as a fairer alternative to leasehold. Pennycook's statement indicated that the Government aims to transition new developments to commonhold before the next general election. A White Paper on the proposed reforms will be published early next year, followed by a draft bill in the second half of 2025.
While the intent to reinvigorate commonhold is commendable, the lack of detail regarding its implementation raises concerns. Issues such as transitioning existing leasehold properties to commonhold, addressing mortgage lender hesitancies, and ensuring robust dispute resolution mechanisms must be resolved to make commonhold viable. Until then, leaseholders remain trapped in a system widely regarded as outdated and unfair.
Impact on Leaseholders
For ordinary leaseholders, the Government's piecemeal approach to reform has real and immediate consequences. Without clarity or a firm timetable for change, many homeowners are forced to delay critical life decisions, from selling their homes to applying for mortgages. The ongoing uncertainty also perpetuates the financial strain caused by escalating service charges, ground rents, and insurance premiums. Leaseholders hoping for relief from the burden of marriage value or inflated enfranchisement premiums must now wait indefinitely, further eroding trust in the reform process.
The announcement also fails to address broader systemic issues, such as:
- Ground Rent Capping: The lack of immediate action on capping ground rents leaves leaseholders vulnerable to escalating costs.
- Legal Costs: Freeholders passing on exorbitant legal fees to leaseholders during disputes remains unaddressed.
- Service Charges: Despite the promise of greater transparency and accountability, no timeline has been provided for implementing changes to service charge regulations.
Seven Legal Challenges: Another Hurdle
Adding to the uncertainty are seven legal challenges files against the Government, which could further delay reforms. These challenges highlight the contentious nature of leasehold law and the high stakes involved for both leaseholders and freeholders.
Looking Ahead
The Housing Minister’s assertion that the Government is committed to ending the "feudal leasehold system" is encouraging in rhetoric but underwhelming in action. While the removal of the two-year rule is a step in the right direction, it falls far short of the transformative reforms leaseholders were led to expect. The promise of commonhold as the default tenure may signal a brighter future, but without concrete plans or immediate relief, the present remains bleak for many leaseholders.
As the leasehold market waits for clarity, one can only hope that the Government recognises the urgency of these reforms and acts decisively to deliver on its commitments. For now, however, leaseholders remain in a state of limbo, grappling with the same challenges that have plagued them for decades.
The Leasehold and Freehold Reform Bill 2024, once hailed as a turning point, has become a symbol of unfulfilled promises. While progress may come eventually, the delay in implementing crucial provisions underscores the need for a more decisive and transparent approach. As millions of homeowners wait for the reforms they were promised, one must ask: how much longer can they afford to wait?
Leasehold and Commonhold Reform Bill: Timescales
Immediate Measures and 2024 Act Provisions
- Removal of the Two-Year Rule (January 2025): Leaseholders will no longer have to wait two years after purchasing a property to extend their lease or buy their freehold.
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Implementation of Building Safety Measures:
- 24 July 2024: Legal costs associated with remediation of unsafe buildings.
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31 October 2024: Further building safety clarifications, including:
- Coverage for interim safety measures like waking watches.
- Recovery of costs for displaced leaseholders' alternative accommodation.
- Spring 2025: Expanded Right to Manage (RTM): Expansion of RTM eligibility to include buildings with up to 50% non-residential floorspace. Reforms to RTM costs and voting rights to prevent freeholders from dominating RTM companies.
2025 and Beyond
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Consultation on Key Provisions (2025):
- Next Summer (2025): Consultation on valuation rates for enfranchisement premium calculations. Implementation may extend beyond 2025.
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Other consultations in 2025:
- Building insurance remuneration bans to replace commissions with fair and transparent fees.
- Service charges and legal costs reforms to make challenges easier for leaseholders.
- Publication of Draft Leasehold and Commonhold Reform Bill (Second Half of 2025): Comprehensive new legal framework for commonhold, including transitioning new developments to commonhold as the default tenure.
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Consultations on Commonhold Reforms (2025):
- Early 2025: White Paper on commonhold reform.
- Stakeholder input on banning new leasehold flats, exemptions for legitimate leasehold use, and conversion of existing flats to commonhold.
Further Provisions Without Fixed Dates
- Abolition of Marriage Value: No fixed timeline for removing marriage value from enfranchisement premium calculations.
- Capping of Ground Rents: Commitment to cap ground rents at 0.1% of property value remains without a timeline.
- Mandatory Professional Qualifications for Managing Agents: Consultation on regulating property managing agents planned but without a clear implementation date.
- Reforms to Section 20 ‘Major Works’ Procedure: New procedures for leaseholders facing large bills remain under consideration.
- Abolition of Forfeiture as a Lease Compliance Mechanism: The disproportionate threat of forfeiture is to be removed, but timelines are not specified.
Long-Term Objectives
- Transition to Commonhold as Default Tenure: Goal to make commonhold the default tenure before the next general election (likely 2029).
- Further Consultations and Reforms: Additional consultations on reducing the prevalence of private estate management arrangements (‘fleecehold’) and ensuring consumer protections in mixed-tenure estates.
Summary of Delays
Key omissions with no firm timeline include the extension of lease terms to 990 years, the obligation for freeholders to bear their own legal costs in claims, immediate implementation of valuation reforms, and abolition of marriage value.
These timescales highlight the piecemeal nature of the reforms, with most measures requiring extensive consultation, legislation, and stakeholder input, potentially delaying meaningful changes until late in the decade. For leaseholders, this protracted timeline means continued uncertainty and financial strain.