Leasehold reform Gove’s swansong – but no ground rent cap

Long-awaited leasehold reform was one of a handful of bills which made it through a chaotic day in Parliament as it shut down ahead of the General Election on 4th July. The Leasehold and Freehold Reform Act, a longstanding manifesto commitment, officially received Royal Assent, but fell short of one of the key objectives of reform; capping ground rents. Current Secretary of State for Levelling Up, Housing and Communities Michael Gove, has also announced he will be stepping down as MP for Surrey Heath at the election. 

As promised, the Act will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges. Despite the original draft of the Bill, which was announced just week’s after the King’s Speech in November 2023, omitting a ban on new build leasehold property, the final version will ban the sale of new leasehold houses other than in exceptional circumstances.

The Leasehold and Freehold Reform Act will also

• Make it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent of their choice.
• Make it cheaper for leaseholders to exercise their enfranchisement rights as they will no longer have to pay their freeholder’s costs when making a claim.
• Extend access to redress schemes for leaseholders to challenge poor practice. The government will require freeholders, who manage their building directly, to belong to a redress scheme so leaseholders can challenge them if needed – managing agents are already required to belong to a scheme.
• Make buying or selling a leasehold property quicker and easier by setting a maximum time and fee that for home buying and selling information.
• Grant homeowners on private and mixed tenure estates comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are.
• Scrap the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges.
• Ban ‘opaque and excessive’ buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.
• Remove the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.

Campaigners hailed the bill as the first step in an ‘important journey’ to abolishing leasehold tenure and vowed to double down efforts to promote further reform. John Jones, head of residential property at Jackson Lees, says:

“There has been much debate about this bill and whether it goes far enough but, whilst it is far from perfect, it is progress, nonetheless. It does not address all the problems leaseholders face, such as ground rents which many argue should be capped or scrapped altogether, but it does put them in a better position than before. It also represents the biggest shake-up of the leasehold system in decades, and that has to be better than it being paused for the general election and left languishing on what will undoubtedly be a very long list of priorities under the new government.”

Timothy Douglas, Head of Policy and Campaigns at Propertymark comments,

“The recently passed leasehold legislation is far from perfect, but it is the start of reform to outdated legislation that was not fit for purpose. Once implemented the new laws will make it more commonplace to extend a lease and information about leasehold property will be made more transparent, which will make buying, selling and renting leasehold property easier. However, the legislation is a missed opportunity to tackle some key issues. Propertymark argued that the legislation needed to go further to incorporate the recommendations for the Regulation of Property Agents. At a time where building safety regulations have increased and become more complex, it is shortsighted that policy makers were unwilling to see the benefit to consumers of qualifying and licensing the competency of those who work in the property sector.”

Criticising the speed of the final stages of the Act’s passing, a spokesperson for The Residential Freehold Association, said:

“The Leasehold and Freehold Reform Bill is a defective and poorly evidenced piece of legislation which has ignored the outcomes of consultation with industry and leaseholders alike. The Government has pushed this Bill through without proper scrutiny and as a result there is work to be done to ensure there are no unintended consequences that will negatively impact leaseholders.”

Sentiment from around the property community is positive on the one hand, with reform long overdue, mixed with cautious optimism that an incoming government continues to place the necessary emphasis on further progress. Mark Chick, director of ALEP (the Association of Leasehold Enfranchisement Practitioners) and Linz Darlington, Managing Director of Homehold sum up the mood, saying

“In what are some of the biggest changes to the residential leasehold sector in the last 21 years since the Commonhold and Leasehold Reform Act 2002 came into force in 2003, we now have a major shift in the direction of the law… ALEP has long been at the forefront of campaigning for change in the residential leasehold sector and right back from its beginnings just over 16 years ago, ALEP has continuously sought to engage with government over legislative change.

“The Law Commission’s excellent work on this in 2018 with its final reports in 2020 set out the basis for real and lasting change and a major piece of consolidating legislation. Government promised to answer this and they did, albeit very late in this parliament with the Leasehold and Freehold Reform Bill – a piecemeal answer in the final year of this government, looking to deal with the ‘headline’ items – the removal of marriage value where leases have less than 80 years to run and a ban on the creation of new leasehold houses. All of these being things that Sajid Javid promised when he was the Housing Minister back in 2017.”

“Whilst the provisions of the Leasehold and Freehold Reform Act 2024 go some way to addressing a number of the issues that we and our members have mentioned for years (such as the two year qualification period and the position relating to successive claims), this is in some senses a ‘piecemeal’ piece of legislation, making radical changes to the valuation regime, to the detriment of freeholders and the advantage of leaseholders.”

“Whilst the government has achieved its stated objective of putting this legislation on the statute books, there is still uncertainty over the outcome of the consultation on ground rents. Any proposals in this direction are likely to have to wait, given that we are now heading into the ‘restricted period’ (formerly known as ‘purdah’) in the run up to the general election. Given this, we do not anticipate significant moves to deal with the necessary secondary legislation until after the election. The same may be true of the provisions relating to the commencement generally. We await further clarification and very much hope that this is forthcoming in the very near future.”

Darlington adds

“This limited bill is a muted win for leaseholders. While the legislation is not without merit, leaseholders must see it as a step in a journey rather than the destination itself. The bill does not contain many of the important provisions that were promised by the Government. The commitment to remove ground rent for existing leaseholders, or even cap it at £250, has not been included. Another notable omission from the bill is the prevention of forfeiture, a draconian measure that allows a freeholder to repossess a flat for a debt of just £350.

“Frustratingly, most of the changes which have been included will not come into effect immediately or even within a specified timeline. Instead, we will have to wait for additional legislation to fill in the gaps – and the bill’s impact assessment suggests this won’t be in place until 2026… As promising as this step is, it will be the responsibility of the next Government, and the timeline they set, to get leasehold reform to the point it will actually benefit leaseholders.”