Leasehold reform edges closer

It is perhaps not surprising that many have lost track of quite where we are in terms of leasehold reform.  In short, both the Freehold and Leasehold Reform Bill and the Renters (Reform) Bill are progressing their way through the various committee stages required before either become law and there is, therefore, still some way to go before the Government can meet its objectives of seeing both provisions through to the statute books before the next general election.

Freehold and Leasehold Reform Bill 

The Freehold and Leasehold Reform Bill, which will introduce a range of measures, outlined in our previous Insights, but including the right for leaseholders to claim longer lease extensions for flats and houses, extended rights for leaseholders to purchase the freehold of their houses, changes to the valuation methods used for enfranchisement claims, collective enfranchisement made available to more mixed-use buildings and greater service charge transparency. Key developments in the last few weeks have included:

• Ban on leasehold houses:  The publication of previously omitted provisions set to prevent the grant of a new "long residential lease of a house". At the time of writing, these provisions include the significant exclusion of retirement communities and land owned through a lease granted to another organisation prior to December 2017. 
• Ground rent reforms: There is considerable speculation that, now that the consultation period on the reform of ground rents has now ended, whichever of the five proposed reforms is taken forward will be incorporated into the Freehold and Leasehold Reform Bill (remember 'no change' is not on the table).
• Forfeiture: There has also been considerable speculation as to the future and possible abolition of the landlord's remedy of forfeiture of residential tenancies.  Whilst this does not appear to have the full backing of the Government, it is possible that an amendment will be introduced limiting if not fully abolishing the forfeiture of long residential leases.
• Commonhold:  Aside from the much-quoted statement from Michael Gove in which he described leasehold as "an outdated feudal system that needs to go", there seems little evidence that the Government intend to fully "reinvigorate" commonhold as an alternative form of tenure.  This can be contrasted with the stated intention of the Labour party to "make commonhold the default tenure for all new properties".

Renters (Reform) Bill 

Significantly, the Freehold and Leasehold Reform Bill has now overtaken the Renters (Reform) Bill on the race to the statute books. The Renters (Reform) Bill includes the controversial abolition of section 21 'no fault possessions'. The belated recognition by the Government at the end of 2023 that the court system would need to be reformed before s21 could be abolished led many to think that the Bill would be quietly put out grass.  A subsequent statement in February from Michael Gove maintaining that s21 would be "outlawed" before the general election added fuel back to the fire but was promptly followed by rumours of backbench MPs co-ordinating attempts to water down the reforms. 

There is talk of nervousness and uncertainty within the residential market regarding the possible erosion of landlords’ interests arising from the Renters (Reform) Bill with tales of some landlords considering withdrawing from the rental market altogether. This uncertainty has not been helped by the rumours of how the Government may tackle the problems. Whilst the intent is clearly to pursue the reforms it is possible that there may simply not be enough time for the Renters (Reform) Bill to be implemented prior to the general election.

As for the Freehold and Leasehold Reform Bill, ultimately, when it does come into force, it is reasonable to expect a sharp increase in the number of enfranchisement claims, with claimant tenants enjoying the benefit of an expected significant reduction in expense, and landlords facing the consequent significant reduction in their returns.  However, for now, matters remain “on hold” as we wait to see the precise detail of just what will be enacted, and when. With a hard deadline on the near horizon of the present Government intending to bring the Act into force before a forthcoming election, it feels as though, now more than ever, the market is in the mode of “watch this space”. It remains to be seen quite what that means for any pent-up demand in claims if the Government is not able to finalise matters before an election.

With a hard deadline on the near horizon for the present Government clearly intending to bring both Bills into force before a forthcoming election, it feels as though, now more than ever, the market is in the mode of “watch this space”. It remains to be seen quite what that means for any pent-up demand in claims if the Government is not able to finalise matters before an election.

Want to know more? 

In our Spring 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. Access the bulletin here.