Leasehold reform has been on the political agenda for several years and there was therefore considerable speculation as to what the King's Speech in November would bring, particularly in the areas of enfranchisement and residential development.

Leasehold and Freehold Reform Bill

Whilst the King's Speech itself was perhaps light in detail, we do now have a little more clarity, with key reforms set out in a Leasehold and Freehold Reform Bill promising 'decisive action' to 'address one of the longest-term challenges that the country faces: fairness in the housing market' 'making it cheaper and easier for more leaseholders to extend their lease, buy their freehold, and take over management of their building.' The headline reforms include:

• Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold. 
• Increasing the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to £0 and removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes. Both of these points had already been mooted and are not particularly controversial given the current ability to make back to back 90 year extension claims and the ability to assign the benefit of an extended lease claim. Whilst the reference to the reduction of ground rent may look generous those in the know will appreciate that simply reflects the current position.
• Increasing the 25% 'non-residential' limit preventing leaseholders in buildings with a mixture of homes and other uses such as shop and offices, from buying their freehold or taking over management of their buildings. Whilst not a new proposal, this had not been anticipated to form part of the current reforms.  This is a significant change and will increase the number of properties that may be enfranchised.  As such, this looks set to prove contentious amongst landlords.
• Banning the creation of new leasehold houses. The inference being that this provision will apply only to newly built houses, rather than all new leases of houses, but this is not expressly spelt out.  The ban will not extend to new flat leases, which whilst attracting a surprising high level of support in some quarters was surely never going to form part of the reforms, given the lack of any viable alternative form of tenure to leasehold for flat ownership.  Commonhold seemingly on the back burner for the time being.

Further details of the proposed reforms are set out in the 150-page Leasehold and Freehold Reform Bill, published this week.  The Bill will need to progress through Parliament before coming law.  Whilst those in government have stated a clear intention to see the Bill pass into law before the next general election, this will require significant engagement from all involved.

Consultation on capping ground rent in existing leases

The King's Speech also included the promise of a consultation on capping existing ground rents to ensure that all leaseholders are protected from making payments that require no service or benefit in return. Whilst not forming part of the Leasehold and Freehold Reform Bill, the promised consultation was published within days of the King's Speech with the consultation closing on 21 December.

The consultation sets out a series of options as to how the government could intervene to cap the ground rent existing leaseholders pay.  This builds on the existing legislation that already restricts all new residential leases to a peppercorn ground rent.  The consultation outlines five options:

• Capping ground rents at a peppercorn.
• Setting maximum financial value for ground rent.
• Capping ground rents at a percentage of the property value.
• Limiting ground rent to the original value when the lease was agreed.
• Freezing ground rent at current levels.

Each of the above options would require some degree of reform to the current position, 'no change' not featuring in the five options for reform.  Whilst the potential significant financial impact for freeholders is acknowledged in the consultation, the consultation does not include provision for freeholders to be compensated for any loss of revenue or the ability for freeholders to capitalise the lost income stream by other means. The consultation can be viewed here and looks likely to provoke some lively debate in the run up to Christmas.

Want to know more? 

In our Autumn/Winter edition of Property Insights our team of experts shine a spotlight on new legal developments and offer some insights on issues that are currently shaping the property market. In this edition we look at what the King’s speech outlined in the areas of enfranchisement and residential development, new legislation aimed at ‘levelling up’ and ‘breathing new life into business and the regions across the UK’, the current state of play with Energy Performance Certificates (EPC), how the Autumn statement brought support for entrepreneurs, updates on the Building Safety Act and finally, the factors that are propelling the surge in private debt within the UK’s real estate sector. Access the bulletin here.