What You Need to Know about Leasehold Reform 2023?

The Leasehold and Freehold Reform Bill announced in the King's Speech in November 2023 includes several significant changes to leasehold laws in England and Wales. Here is what you need to know about these changes:

Ban on new leasehold houses: The government plans to prohibit the sale of new leasehold houses in England and Wales. This means that all new houses constructed will be sold as freehold, except in exceptional cases. The aim is to put an end to the practice of selling new houses on leasehold terms, which has been criticised for various reasons, including escalating ground rents and limited control for homeowners.

Easier lease extension and freehold purchase: The proposed reform aims to make it more affordable and accessible for existing leaseholders (both in houses and flats) to extend their leases or buy the freehold of their properties. This would give leaseholders greater control and security over their homes.

Lease extension term: The standard lease extension term will be significantly extended from 90 years to 990 years for both houses and flats. This would mean that leaseholders can effectively enjoy their properties for nearly a millennium, reducing concerns about short lease terms and the associated costs.

Ownership duration requirement: The requirement for new leaseholders to have owned their house or flat for two years before they can benefit from lease extension or freehold purchase will be removed. This streamlines the process and allows newer homeowners to take advantage of these opportunities sooner.

Streamlined property transactions: The reform will set a maximum time and fee for providing information to a leaseholder by the freeholder when buying or selling a leasehold property. This simplifies and expedites property transactions, reducing delays and costs.

Transparency on service charges: Leaseholders will have greater transparency regarding service charges, ensuring that they understand what they are being charged for and why.

Removal of Buildings Insurance Commissions: The reform will eliminate buildings insurance commissions for managing agents, landlords, and freeholders. Instead, it will introduce transparent administrative fees, reducing potential conflicts of interest and providing clarity regarding costs.

Access to redress schemes: Leaseholders will have expanded access to redress schemes, enabling them to challenge poor practice or disputes with property management.

Scrapping legal costs presumption: The presumption that leaseholders must pay their freeholders' legal costs when challenging poor practice will be removed. This makes it easier for leaseholders to challenge unfair practices without the fear of incurring substantial legal costs.

Rights for freehold homeowners: The reform grants freehold homeowners on private and mixed-tenure estates the same rights of redress as leaseholders, ensuring that they have protections in place to address issues with property management.

Building remediation funding: The reform builds upon the legislation introduced by the Building Safety Act in 2022. This ensures that freeholders and developers cannot evade their responsibilities to fund building remediation work, which is crucial for the safety and maintenance of properties.

Increased access to freehold ownership: Leaseholders in buildings with up to 50% non-residential floorspace will have the option to buy their freehold or take over its management. This is an increase from the previous threshold of 25% and gives leaseholders more control over their property.

However, it is important to note that the cap on ground rents has not been finalised, and the government plans to consult on it to ensure that leaseholders are not burdened with unnecessary charges.

Regarding the sale of new leasehold flats, the government has not gone as far as abolishing them entirely. This has raised concerns, as leasehold reform advocates argue that this system continues to allow management agencies and freeholders to exploit homeowners.

The exact timing of when these reforms will become law and when they will be implemented is uncertain. There is also no guarantee that all proposed reforms will make it into the final Bill or receive Royal Assent. Therefore, the advice for leaseholders is to consider their individual circumstances and seek expert advice on whether to extend their leases now or wait for the potential reforms to take effect.

Additionally, there are calls for the Bill to include a simpler lease extension calculator and the abolition of marriage value, which is a significant cost factor for leaseholders with leases under 80 years.

The Leasehold and Freehold Reform Bill introduces several positive changes for leaseholders, but it does not go as far as some advocates had hoped in completely abolishing leasehold for new flats. The specifics of the Bill and its implementation are yet to be determined, so leaseholders should consider their individual situations and seek professional advice.