Just 20 days after the King’s Speech, the Leasehold and Freehold Reform Bill was introduced to Parliament on Monday (27 November). This forms part of the Government’s long-term plan for leasehold reform.
So what does this actually mean for leasehold enfranchisement?
Whilst the King’s Speech didn’t give too much away, the background briefing note issued by Downing Street immediately afterwards confirmed that the Leasehold and Reform Bill would include a number of reforms, and sure enough, the following provisions have made it in:
- Standard lease extension term increased to 990 years for both houses and flats.
- 2-year ownership rule removed.
- 'Non-residential’ limit increased to 50% for freehold and right to manage claims.
But, as mentioned previously, it would have been foolish to think that anything was either on or off the table before the Bill was published. There are more than a handful of other items contained in the Bill also, that are worthy of note:
- The removal of restrictions on repeated claims.
- An amendment to the position regarding the acquisition of intermediate interests/leases of common parts in collective enfranchisement claims.
- A new right for leaseholders to require their landlord to take a ‘leaseback’ of any unit that is not let to a participating tenant (to include commercial units).
- A new costs regime for enfranchisement and right to manage claims, where (subject to some exceptions) leaseholders will not generally pay their landlord’s costs.
- An amendment to the jurisdiction for disputes - so, as far as possible, all disputes will be determined by the Tribunal.
- A new right for leaseholders with long leases (more than 150 years unexpired) to buy out their ground rent without extending the term of their lease/buying the freehold.
- An amendment to the statutory redevelopment break rights - providing freeholders with consistent rights for houses and flats, and repealing a number of statutory redevelopment ‘defences’.
- A set method for calculating the premium payable for a lease extension/freehold interest (save for the preserved section 9(1) of the LRA 1967), which includes:
- the removal of the requirement for marriage value and/or hope value to form part of the valuation;
- the capping of ground rents to 0.1% of the freehold value for valuation purposes;
- the introduction of prescribed rates (to be set by the Secretary of State in secondary legislation); and
- the treatment of intermediate interests as having been merged into the freehold.
BUT - where is the express ban on the creation of new leasehold houses? Although the impact of this is likely to be small since the Leasehold Reform (Ground Rent) Act 2022 came into force, this was a manifesto commitment by the Tories at the last general election. The final point in the Guide to the Leasehold and Freehold Reform Bill also includes it as one of the heads of reform – “Ban the sale of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset”.
We are told that the Government will introduce some measures at first reading and others as amendments, as the Bill makes its way through Parliament. We are led to believe that these amendments will include a ground rent cap for existing leases – once the consultation on this closes on 21 December, and it has been suggested also that there will be further amendments to the BSA 2022 included within the Bill (designed to ensure that those that caused building-safety defects in enfranchised buildings are made to pay). So perhaps an express ban on new leasehold houses will feature later down the line too?
In the Explanatory Notes, the Government acknowledges that the Bill will financially impact different groups in the leasehold sector and it confirms that they are undertaking a robust assessment of the costs and benefits of the reforms on the impacted groups. The impact assessment will be published in due course apparently!
And, despite concern within the industry that the Bill will be met with some heavy opposition, the BBC reports that Michael Gove has said “I am absolutely confident this bill will be on the statute book by the time of a general election”.
A more thorough analysis will follow from Forsters in the coming weeks.
“I am absolutely confident this bill will be on the statute book by the time of a general election”