The government has set out a timetable for leasehold reform, which could pave the way for easier sales of leasehold properties.
The planned Leasehold and Commonhold Bill will aim to regulate ground rents, prevent freeholders from retaking properties due to breaches of the lease, reform the Section 20 procedure for billing leaseholders for major works, and bring in new regulations for managing agents. Ultimately, the plan is to transition away from the leasehold system to a commonhold system – although it isn’t yet known exactly what that will look like.
The bill is expected to land in the second half of next year. In the meantime, politicians also plan to introduce secondary legislation to bring parts of the Leasehold and Freehold Reform Act 2024 into force.
- Next month, leaseholders will be given the right to extend their lease or buy their freehold immediately. Currently they must wait until two years after purchase.
- From the Spring, it will be easier for leaseholders to form Right to Manage companies to run their buildings. More mixed-use buildings will also become eligible for Right to Manage.
- By the end of the year, the government plans to consult on other secondary legislation. Issues covered will include a ban on commission payments on building insurance, transparency over service charges and legal costs, and the enfranchisement premiums leaseholders pay when extending their lease or buying their freehold.
What would leasehold reform mean for estate agents?
Reforming leasehold rules could be a shot in the arm for sales of flats.
Price growth for flats (almost always leasehold) has lagged behind house price growth for the last several years. Estate agency Hamptons estimates that flat sales would have been 25-33% higher if they had kept up with the rest of the market. They added that ongoing cladding remediation work and leasehold issues have suppressed demand.
The government’s plans to rein in ground rent and make lease extensions easier to achieve would take away two big barriers to leasehold sales. Mortgage lenders often won’t lend on leasehold properties with less than 80 years left on the lease, or where the ground rent is more than 0.1% of the property value or £250 per year (or £1,000 in London). These issues can also be big deterrents for buyers.
However, as concerns more transparency around service charges, it won’t necessarily protect leaseholders from big increases. A reformed Section 20 procedure could also still leave them liable for steep repair costs. A White Paper on commonhold is expected to be published later this year, along with consultation documents on the other proposed reforms. Until then, leaseholders, agents and prospective buyers will have to wait for more details.
Other regulation headlines
Building owners could face prison if unsafe cladding not removed by 2029 – Sky News
Planning reforms will end development chaos, says Rayner – BBC
Conveyancing makes up a third of all legal complaints – The Negotiator
