King’s Speech: Developments on Leasehold and Commonhold Reform remain high on the Government’s agenda

We were expecting an announcement in the King’s Speech on leasehold and commonhold reform and one was made. The Government has today announced new legislation in the form of the Leasehold and Freehold Bill but much of the detail to be contained within the Bill has been announced previously and repackaged into the Bill.

The background briefing to the King’s Speech confirms that the key provisions of the Bill will be:

• “Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold”.
• To enable those leaseholders seeking a statutory lease extension to acquire an additional 990-year term rather than a 90-year term on top of the unexpired term of the lease with ground rent to be a peppercorn (as happens on existing statutory lease extensions).
• Removing the qualifying requirement for a leaseholder to have owned a house or flat for 2 years before they can extend their lease by statute.
• In mixed-use buildings, increasing the threshold from 25% to 50% for the maximum amount of non-residential parts for a building to qualify for collective enfranchisement or right to manage.
• Increasing regulation around buying and selling a leasehold property in terms of setting a maximum time and fee for the provision of information by a freeholder to a leaseholder concerning a sale.
• Increasing transparency over leaseholders’ service charges.
• Replacing building insurance commissions with administration fees.
• Extending rights currently held by leaseholders to freehold owners on estates to challenge the reasonableness of estate management charges in the First-Tier Tribunal (Property Chamber). 
• Banning the creation of new leasehold houses.

Most of these announcements have been made previously. For example, the intention to ban the creation of new leasehold houses was made over four years ago and has largely been factored into the property market. In addition, granting similar rights as currently exist for leaseholders of flats to freeholders’ of houses to challenge the reasonableness of estate management charges was proposed in 2019. 

However, the announcement to increase the threshold for the maximum amount of non-residential parts before a building will qualify for collective enfranchisement and right to manage from 25% to 50% is new and follows a consultation which closed in February 2022 where such proposals were consulted upon. This would increase the number of buildings falling within scope of collective enfranchisement and right to manage. This may mean leaseholders of mixed-use buildings will become responsible for managing more complex buildings. Practical issues may arise which would not necessarily be addressed by the appointment of professional managing agents.

Further detail is required on how the Government intends to make lease extensions cheaper.  The Government has yet to publish details of exactly how premiums will be made cheaper and how they will be calculated under the Bill. In January 2020, the Law Commission set out a menu of options and sub-proposals for how premiums could be reduced but the outcome depends on which menu the Government selects. Examples of premiums are given in the background briefing note without the accompanying methodology on how the new premiums are calculated.

There is also an announcement that the Government will consult on capping ground rents in existing leases of flats and houses. The Leasehold Reform (Ground Rent) Act 2022 has capped ground rent in new leases of flats to £0 but there is no indication as to how the Government would propose to legislate to interfere with existing arrangements between landlords and tenants (which is clearly much more difficult!). Further detail will be needed on the Government’s proposals and whether these will focus on flats and houses with particularly onerous ground rents or all existing leases of flats and houses.

Essentially, the Government does not appear to be looking to overhaul the entire system but to introduce individual reforms. The absence of any reference to commonhold is notable given that the Law Commission has been pushing it as the predominant method of home ownership.  However, as ever the devil will be in the detail and it will be necessary to scrutinise the Bill for full details of the Government’s proposals. We are continuing to track developments on our Essential Residential Hub and on our timeline: Changing landscapes in residential leasehold.