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Update on the Freehold and Leasehold Bill

On Tuesday 7th November 2023, the Leasehold and Freehold Bill was announced during King Charles’ first king’s speech in Parliament. When it becomes law, the Bill will deliver the Government’s commitments on leasehold reform as outlined in their manifesto – to provide “fairness in the housing market”.

Following the Kings Speech, on 09 November 2023, the Department for Levelling Up, Housing and Communities launched a consultation on capping ground rent in existing leases. The deadline for responding to the consultation has been extended from 21 December to 17 January 2024 and the government has indicated that the responses will inform the proposed reforms in the Leasehold and Freehold Bill.

On 27 November 2023, the government introduced the Leasehold and Freehold Bill (“the Bill”) to Parliament.

What does the Freehold and Leasehold Bill include?

Lease extensions, freehold purchases and right to manage

Proposals in the Bill concerning lease extensions, freehold purchases and the right to manage include:

  • Future lease extensions will be by 990 years, instead of 90 years as now, at a peppercorn rent;
  • A flat owner will no longer need to own the flat for two years before applying to extend the lease;
  • Marriage and hope value will no longer be taken into account in the price of a lease extension or freehold purchase;
  • The “net present value” of the ground rent will be capped at 0.1% of the market value of the freehold interest in calculating the price of a lease extension;
  • Enfranchisement rights currently do not apply to mixed-use buildings where the non-residential use is 25% or more – this will become 50%
  • A new standard valuation method will apply in most cases;
  • The tribunal will be able to handle some disputes that currently have to be dealt with in court.
  • The right of the landlord to be paid costs by a flat owner will be limited.
  • Leaseholders will have a new right to buy out their ground rent, at a price, if the lease still has more than 150 years left to run.

Service charges

  • Owners who pay a service charge on their freehold homes will have a new right to challenge this in the tribunal, and the right of leasehold owners to challenge their service charges will include fixed amounts laid down in their leases as well as variable amounts that depend on what the landlord spends on services.
  • Landlords will have to give flat owners more detailed information about service charges and buildings insurance, or risk paying up to £5,000 compensation to a flat owner who applies for it to the tribunal.
  • Even if the words of a lease give landlords the right to include their own legal costs in the service charge, they will no longer be able to do this without getting approval by the court or the tribunal.

Guidance from the government on the Bill can be viewed here.

Parliamentary Process

The Bill has begun its passage though the parliamentary process. The proposals in the Bill will be scrutinised and debated and inevitably, changes and amendments will be made, and some matters dropped altogether.
The final Bill which will be enacted may well be different from the Bill as it stands now. There is therefore no guarantee that all of the proposals in the Bill will become law.

What has happened so far?

Last year, the Leasehold Reform (Ground Rent) Act 2022 came into force. The effect of the legislation is that any new lease granted on or after 30 June 2022 would no longer be permitted to have a ground rent. However, this reform only removed ground rent from new leases and not on any existing leases.

This year, the Levelling-Up and Regeneration Act 2023 enacted on 26 October 2023 and it will come into force on 26 December 2023. This legislation covers a loophole in the Building Safety Act 2022 which inadvertently excluded leases granted after 14 February 2022 from the protections under the Act. This loophole will be closed, and the legislation will apply retrospectively, so any leases affected will have the protection from 26 December 2023.

Dona Awano, head of our specialist leasehold team says; “The introduction of the Bill to Parliament is a welcome development. The Second Reading of the Bill is scheduled for 11 December 2023 and we will be following the Bill’s journey through Parliament to see how it evolves and whether some of the controversial proposals sail through and make it into legislation. It is also anticipated that the response to the ongoing consultation on ground rent will feed into the Bill at some stage.”

About our Leasehold team

Based in our Crystal Palace office, our Leasehold Enfranchisement solicitors are all highly experienced in this niche area of Property law. Amphlett Lissimore are members of the Association of Leasehold Enfranchisement Practitioners (ALEP), so you can be sure to receive from us a high level of service, integrity, and professionalism.

 

Further reading

Ground Rent in Residential Leases

February 28, 2024

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