Leasehold reforms now enacted

Michael Gove may not have fulfilled his dream of abolishing leaseholds and capping ground rents, but did at least see some significant proposed changes become law before he steps down from being an MP, including that all new houses must be sold as freehold.

Just before Parliament was prorogued on Friday the Leasehold and Freehold Reform Act was passed.

Homeowners regard the biggest downside of being a leaseholder is owning a depreciating asset with the value of the lease diminishing over time as the unexpired term decreases. This means that at some point a new lease needs to be acquired.

It will now be easier and cheaper for leaseholders to acquire a new lease. They will no longer have to have owned their flat for at least two years before becoming eligible to apply for a new lease.

All new leases of flats and houses granted pursuant to the new legislation will be for 990 years with a ground rent at zero.

The process will be cheaper because leaseholders will no longer have to pay their landlord’s costs. Moreover they will not have to pay marriage value where the unexpired term of the original lease is below 80 years. There is talk of an online calculator being able to calculate a premium for the new extended lease.

The second biggest downside was having little control over the management of the building in which their flats are situate and having to face often unjustified charges from freeholders and managing agents.

It will now be easier for groups of leaseholders to acquire the freehold of their building or the right to manage it. Previously leaseholders were prevented from doing so where more than 25% of the floor area was commercial. This percentage has now been increased to 50%.

Leaseholders will be entitled to greater transparency over service charges as freeholders and managing agents will now have to issue bills in a standardised format. Handling fees must be fairer and more transparent. The practice of managing agents receiving excessive buildings insurance commissions is now banned.

There will be improved access to redress schemes to challenge poor practice. The Government will require freeholders who manage their buildings directly to belong to a redress scheme.

The Government ran out of time to assist short term renters – there was insufficient time for the Renters Reform Bill to become law. Therefore the perceived main evil of the lettings regime – no fault evictions – remains in place.

No doubt more proposed reform will appear in the political manifestos of the major parties. But abolishing leasehold tenure which has been in existence for centuries is easier said than done. But there certainly remains the potential for further reforms that will redress more of its downsides, although the threat of a challenge from institutional landlords and the landed estates becomes more real.

If you have any questions regarding this subject please contact Katherine Simpson, Rosie McCormick Paice or any member of the residential property team.

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