Leasehold reform has been a long-debated topic, with the dust still settling on recent changes and potential changes looming on the horizon. In this guide, we summarise the latest developments as of October 2023 in a bite-size overview designed to highlight the main considerations.

Background

The discussion on leasehold reform has been ongoing since 2017, but the spotlight is on November 2023 for potential significant changes.

What’s been the issue?

There are a few things to consider when it comes to leasehold ownership and so far the main focus of these reforms has been on ground rents- the fact that they exist at all and also that they tend increase over certain periods, sometimes exceeding inflation. Things really came to a head when some developers started imposing ground rent on leases for properties which would otherwise be sold as freehold houses. There are a number of good reasons for granting leases of flats (and even some plausible arguments for ground rent in such circumstances- a topic for another day!), but it’s hard to justify why a house built on its own land should be subject to such arrangements and these “leasehold houses” were used as an opportunity by some to charge ground rent for the sake of it. This understandably needed addressing (for the latest on this see the following link: https://www.lbc.co.uk/news/all-new-houses-to-be-sold-as-freehold-end-leasehold/) and kickstarted the ongoing conversation around political reform we see today.

Where are we now?

So far we have seen the enactment of the Leasehold Reform (Ground Rent) 2022 which has abolished ground rent for any leases of newly built flats and more recently this was extended to include retirement properties. Leases of existing properties which already contain ground rent provisions are not affected by this change and such leases will continue to require ground rent payments. A good step forward, however, we’re left with a “two-tier system” where a large number of existing properties have ground rents and newly built properties don’t and won’t.

Potential Reforms and Impact

So what other changes might we see? Some of the further amendments under consideration are:

• Proposed prescribed rates and an online calculator which may simplify the lease extension process.
• The abolition of "marriage value" which could benefit those with leases below 80 years.
• Capping certain ground rents at 0.1%, reducing costs for affected leaseholders.
• The option to buy out ground rent separately from extending the lease (which may complicate matters)
• The introduction of lease extensions for up to 990 years (the current statutory extension period is 125 years)
• The complete abolition of leasehold tenure…?

Abolition vs. Reform

Although the abolition of Leasehold tenure has been bandied around by politicians seeking attention grabbing headlines (most recently Michael Gove for example), the complete abolition of leasehold is unlikely. The reality is that such an exercise would prove close to impossible and there’s no indication of what would replace it. Going back further Labour’s attempts to introduce Commonhold as Leasehold’s successor proved practically futile. Instead, reforms to polish the existing system seem to be the way forward.

When to Expect Further Reform

Timing remains uncertain, with optimism for the reforms to be introduced in the coming parliamentary session starting on 7 November 2023. A general election could of course impact the reform's progress and direction, depending on the political landscape.

That’s all for now and we’ll keep you posted on further developments as they unfold.

Leasehold reform is a dynamic and evolving issue Given the complexity of this area and its accompanying legislation. We lawyers can never resist a CAVEAT: this guide is high level only and designed as a bite-sized introduction to the pertinent issues. It does not constitute legal advice. If you are considering dealing with a leasehold property: whether buying, extending or selling, please CONTACT US and if we will be happy discuss with you arranging expert advice.