Revolutionising Leasehold Rights: Key Insights from the New Leasehold and Freehold Reform Bill

The introduction of the Leasehold and Freehold Reform Bill to Parliament on Monday (27 November 2023) certainly demonstrates the UK Government's commitment to reforming home ownership for leaseholders. Following closely on the heels of the housing proposals highlighted in the King's Speech, this Bill brings into focus several critical changes, particularly affecting mixed-use schemes.

Key Changes and Implications:

The Bill proposes substantial amendments in leasehold and freehold rights, including:

1. Enfranchisement and Lease Extensions: Eliminating the two-year ownership requirement for statutory rights, the Bill extends lease extensions to 990 years with a peppercorn ground rent. The scope of eligible buildings also expands to include those with up to 50% non-residential use.
2. Rights and Restrictions: The Bill proposes removing limitations on subsequent claims and introduces flexibility in acquiring intermediate interests. Notably, it allows leaseholders to mandate freeholders to take a leaseback of certain units, thereby reducing enfranchisement costs.
3. Valuation and Costs: A noteworthy change is the abolition of marriage and hope value, aiming to reduce premiums, especially for shorter leases. Ground rents are capped at 0.1% of the relevant freehold's market value, and a standard valuation method is introduced. Landlord costs will now be payable only in specific circumstances.
4. Tribunal Jurisdiction: The Bill enhances the tribunal’s authority, easing the process for leaseholders to compel landlords to take action.

The Ground Rent "Buy Out" Option:

Amid ongoing consultations on capping existing ground rents, the Bill intriguingly includes an option for leaseholders to "buy out" their ground rent, setting it to a peppercorn for a premium, applicable to leases with over 150 years remaining. This aligns with the Leasehold Reform (Ground Rent) Act 2022's stance on new long leases.

Service Charges Overhaul:

Significant amendments are also being made in the realm of service charges. The Bill extends rights to challenge fixed service charges and mandates landlords to provide detailed information, with penalties for non-compliance. Notably, legal costs recovery through service or administration charges is restricted, empowering leaseholders to seek cost contributions from landlords under certain conditions.

Commentary and Market Impact:

While some Bill provisions are straightforward, the implications for mixed-use schemes and government intervention in agreed lease terms are raising concerns among freeholders and investors. The Bill’s potential amendments, including a possible ban on new leasehold houses and modifications to the Building Safety Act 2022, will further shape the real estate landscape.

Conclusion:

The Leasehold and Freehold Reform Bill marks a transformative phase in leasehold and freehold rights, bringing clarity and potentially altering market dynamics. As we anticipate further amendments and the results of the ground rent consultation, it is crucial for real estate professionals to understand these changes and prepare for their impact. For more detailed insights or queries, feel free to reach out.