PROPERTY EXPERTS REVEAL WHAT THE LEASEHOLD REFORM BILL MEANS FOR HOMEOWNERS
As Labour announced sweeping changes in its inaugural King’s Speech last week, there’s been lots of chatter about what the party has pledged in terms of housing policy.
Wearing the Imperial Crown, King Charles’ address to mark the State Opening of Parliament notably committed to protections for renters and an end to no-fault evictions, a move that was described by homelessness charity Shelter as a ‘once-in-a-generation opportunity.’
But there’s one part that’s received particular attention – Labour’s stance on the Leasehold and Freehold Reform Act, and what it could mean for homeowners under these specific contracts.
So, what could the Act look like in practice, and when are we likely to see its impact? Metro.co.uk chatted to the experts to find out.
What is a leasehold agreement?
In case you need a refresher, homeowners under leasehold agreements – commonly seen in flats and shared ownership schemes – do not own the land their property sits on outright and need to make extra rental payments to the freeholder (sometimes known as a landlord), who does.
According to Greater London Authority guidelines, freeholders have complete ‘control over what happens on the land and any buildings on it.’ As such, they can ‘rent out the property, land, or parts of the land to others, either short-term or long-term.’
What is the Leasehold and Freehold Reform Act?
Legal agreements set out responsibilities and charges for property maintenance and time limits for ownership, but the Leasehold and Freehold Reform Act looks to make life easier for leaseholders in the future.
‘The Act has brought fundamental benefits,’ Emma Hardman, partner and housing management specialist at law firm, Anthony Collins, tells Metro.co.uk. ‘This includes empowering leaseholders to extend the leases with less difficulty, standardising information landlords will have to provide about service charges, and extending the rights of freeholders paying estate rent charges.’
How could the Leasehold and Freehold Reform Act help homeowners?
According to Pete Mugleston, MD and property expert at Online Mortgage Advisor: ‘The goal is to simplify and reduce the cost of extending leases or purchasing freeholds, increasing the standard lease extension term to 990 years for both houses and flats.
‘It will also improve the transparency around service charges and introduce measures to help leaseholders challenge unreasonable costs set by owners.’
Additionally, Emma notes that it’ll see ground rents capped and leaseholders safeguarded against the loss of their homes, as well as making commonhold (an alternative system providing freehold ownership for individual flats, with the building or estate being jointly managed by a commonhold association of residents) the default tenure.
What else was in the King's Speech?
Other key measures in the programme include:
- Establishing state-owned energy production firm Great British Energy with £8.3 billion of public money across the Parliament.
- Creating a £7.3 billion national wealth fund to invest in schemes to generate economic growth and clean energy.
- Placing water companies into ‘special measures’ to clean up rivers, lakes and seas, with bosses facing personal criminal liability for lawbreaking and a beefed-up regulator having the power to ban bonus payments if environmental standards are not met.
- The creation of new Border Security Command and stronger penaltiesfor migrant smuggling gangs as part of the effort to curb crossing of the English Channel.
As part of this, the sale of new leasehold houses will be banned so that – unless in exceptional circumstances – every new house built in England and Wales will be freehold from the beginning of the contract.
Notably, the Bill will grant leaseholders the legal right to buy out the ground rent without simultaneously extending the lease, alongside eliminating the requirement for new leaseholders to have owned their home for two years before they’re eligible to extend the lease or buy the freehold.
When could the Leasehold and Freehold Reform Act come into effect?
Although the Leasehold and Freehold Reform Act 2024 was passed in May this year by the former Conservative Government, the majority of its legislation is not yet in force. As well as pressing ahead with this, Labour has committed to swiftly extend its protections with a new Leasehold and Commonhold Bill.
Essentially, if progress continues at the same speed, homeowners might not see the full benefit of these changes until 2025 or later.
Emma explains: ‘Given the Leasehold and Commonhold Bill was in the King’s Speech, it should be brought into law this Parliamentary year and it’s likely that the outstanding provisions of the Act will be brought in at the same time (or there might be a completely new Act which combines both).
‘Some of the detail may need to be set out in regulations, as with the Act. The Bill represents a historic change in how flats will be sold in the future – so it is a big thing.’
However, as Pete notes, only minor amendments to the Building Safety Act are set to come into force this week, on July 24, which includes provisions for repossessing properties in the event that rent charge payments are missed.
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