Second reading of Leasehold and Freehold Reform Bill in the House of Lords

The second reading of the Leasehold and Freehold Reform Bill took place in the House of Lords on 27 March 2024. Whilst there was not a huge amount of opposition to the Bill as a whole, a number of the Lords considered that the Bill does not go far enough, and in its current form it is a departure from the original vision for the Bill. 

In particular, one of the Labour Lords indicated that they would like to see provisions introduced to prevent landlords from threatening forfeiture of long residential leases where there are arrears or other breaches of the lease. There are already safeguards in place in the residential sector, introduced by the Commonhold and Leasehold Reform Act 2002, requiring landlords to seek a determination of outstanding service charges or other breaches of the lease before they can commence forfeiture proceedings which do not apply to commercial properties.

There was also considerable debate about abolishing marriage value in calculating premiums payable for extended leases of houses and flats or to purchase the freehold of houses or flats.  There were issues raised around the appropriateness of the transfer of wealth, with the view that a great transfer of wealth will be going to investors, not owner-occupiers. This is supported by data which shows that particularly in cities, a significant majority of leasehold interests are owned by investors. In particular, one of the Lords stated that they saw little benefit in London and the South-East because leasehold interests were often owned by investors with a significant number of leaseholders non-UK resident. There was also a reference to the potential impact on UK pension funds which it was suggested required further consideration by the Government.  

There was also an argument submitted that charities should be exempted from the abolition of marriage value as there are many charities that own lots of land with marriage value being a potential income stream. Concerns were also raised that if there is an increase in enfranchisement of buildings as a result of the Bill those enfranchising will need to ensure that ground floor shops are not neglected and there is a sufficiently diverse and varied spread of commercial lettings. 

Alongside the Bill, the Government has been considering the responses to its consultation on ground rents in existing long residential leases and its response is awaited. It was confirmed during the second reading, on behalf of the Government, that it continues to consider the responses to it consultation on capping existing ground rents and the results will be published in due course.

The Bill will now go to Committee stage on 22 April 2024, where there will be a full line by line review of the Bill and any proposed amendments. For a summary of the key provisions of the Bill as introduced and as amended during its passage through the House of Commons, please see our insights: Leasehold and Freehold Reform Bill: Where are we now? – and – Overview of the Leasehold and Freehold Bill: what are the key provisions?  We are tracking developments on our Essential Residential Hub and timeline: Changing landscapes in residential leasehold.