Will There Be a Leasehold Reform?
In January 2023, Housing Secretary Michael Gove promised to scrap the current leasehold system in England and Wales and introduce a leasehold reform. Under the current, outdated system, leaseholders are facing large maintenance bills and legal fees. However, a date is yet to be set for the leasehold reform, leaving many ministers urging answers on whether there will be a leasehold reform in 2023.
What is a Leaseholder?
A leasehold property is when you own the property (subject to the terms of the leasehold) for the length of your lease agreement with the freeholder (landlord).
When a lease ends, ownership returns to the freeholder. This is unless you can extend the lease.
Most flats and maisonettes are leasehold. This means while you own your property in the building, you do not own the building your property is in.
In some occasions, a house is sold as a leasehold. In this instance, you own the property but are leasing the land it sits on.
Why is a Leasehold Reform Needed?
Unlike a freehold property owner, a leasehold owner does not own the land on which the property was built. Instead, the purchaser has a lease which gives them the right to use the property. This means leaseholders must get permission to make any changes to the home and sometimes must pay expensive ground rent.
Additionally, leaseholders can be subjected to expensive legal fees if they want to extend their lease.
In England, around 20% of homes are leasehold properties. Many of these 20% are flats residing in cities.
What Are the New Leasehold Changes?
Shadow Secretary of State for Levelling Up, Housing and Communities, Ms Nandy, tabled a motion, calling the government to put an end to the sale of new private leasehold houses. Instead, she has introduced a system to replace current private leasehold flats with commonholds.
174 MPs all from opposition parties voted in favour of Labour’s motion. Conservative MPs abstained.
It’s important to note that the government does not have to abide by the above results of the vote. However, during the debate, Housing Minister Rachel MacLean insisted that the government was not U turning on its commitments.
Ms MacLean adds that officials in her department were working “flat out” to implement reform. However, she could not provide a precise timetable or details for the legislation.
Mr Gove has been vocal about his criticism of the current leasehold system for a long time. He states the system is unfair and outdated.
In January 2023, Mr Gove stated to the government that he would “absolutely” fulfil the pledge to abolish the current leasehold system and that new legislation would be brought forward shortly.
Protecting Tenants from Ground Rents and Legal Fees
Legislation is planned to be introduced in Autumn 2023. However, this legislation is not planned to include a ban. Instead, the legislation will introduce protections for tenants from ground rents and legal fees.
In addition, the new legislation plans to make leaseholds a less attractive option and lay the groundwork for a viable commonhold system.
A commonhold system means that occupants jointly own and take responsibility for their buildings without an expiring lease.
During a debate ahead of the vote, shadow housing secretary Ms Nandy said: “For so many people in our country, what they thought would be the reward from years of hard work, and the realisation of their dreams of homeownership, is shattered by the reality of what it means to be a leaseholder.”
It’s expected that the new reforms will also enable leaseholders to challenge any “unreasonable charges,” making it easier for people to extend their lease.
Housing Minister Lee Rowley states: “I am pleased to see the market has already responded, with only 1.4% of houses in England now being built as leasehold compared to nearly 15% previously.”
Setbacks to the Proposed Leasehold Reform
Labour’s Lisa Nandy has raised concerns that the proposals were “being rowed back”.
The shadow housing secretary said any delay represented a “significant setback” for leaseholders who “had thought they could finally see the light at the end of a very long, very dark tunnel”.
New rumours swirling around Westminster suggest that the promise to scrap the system may not even happen.
Instead, Mr Gove is expected to announce a cap on ground rents, more powers for tenants to choose their own property management companies and a ban on building owners forcing leaseholders to pay any legal costs incurred as part of a dispute.
Paula Higgins, chief executive of lobby group the HomeOwners Alliance, said: “It’s devastating that the government has dangled the promise of leasehold abolition in front of millions of people only to kick it into the long grass.”
She adds: “While suggested reforms to ground rent and charges are welcome, they address only a few of the injustices of a leasehold system.”
The Problem with Existing Leaseholders
Although the new reforms bring some hope of change to an outdated system, the question remains of what happens to existing leaseholders.
Many leaseholders are trapped in their leasehold property, unable to afford to live in and unable to sell as ground rent rates escalate. Property Mark reports that 78% of their agents struggle with selling these properties, even if priced correctly.
Additionally, 54% of agents who sell on behalf of developers report that they do not always provide pertinent leasehold information.
Unfortunately, it is unclear if and when any reforms will happen any time soon, leaving leaseholders feeling uncertain.
Legal Guidance for Your Leasehold
When considering the purchase of a property, numerous options require careful consideration. Our conveyancing solicitors specialise in assisting you in this decision-making process. Our expert team will diligently examine the property and identify any potential concerns. We will provide you with comprehensive information essential for making an informed choice. Your property acquisition will be in safe hands with us.
If you would like to speak to one of our solicitors, call us now on freephone 03458 941 622.
All advice is correct at time of publication.