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NOVEMBER 2024

Leasehold Reform

LEASEHOLD REFORM

Extracts from the Statement made to the House of Commons on 21 November 2024 by Matthew Pennycook, Minister of State for Housing and Planning:

Over the course of this parliament, the government is determined to honour the commitments made in our manifesto and do what is necessary to finally bring the feudal leasehold system to an end. Given that millions of leaseholders and residential freeholders are currently suffering as a result of unfair and unreasonable practices, we appreciate fully the need to act urgently to provide them with relief. However, we are also cognisant of the significant complexity of the task and the importance of taking the necessary time to ensure that reforms are watertight.
With both of these imperatives in mind, I am today updating the House on the steps the government intends to take to implement those reforms to the leasehold system already in statute and to progress the wider set of reforms necessary to end the feudal leasehold system for good.

The Leasehold and Freehold Reform Act 2024

As set out in the King’s Speech, it is therefore the government’s intention to act as quickly as possible to provide homeowners with greater rights, powers and protections over their homes by implementing its various provisions.

A number of the Act’s provisions came into force on 24 July relating variously to legal costs associated with the remediation of unsafe buildings, the work of professional insolvency practitioners, and removing the remedy where homeowners risk losing their home entirely because of failure to pay an income-supporting rentcharge after 40 days.

Commencing the remaining provisions in the Act will require an extensive programme of detailed secondary legislation. While we appreciate fully the scepticism that leaseholders feel about yet more consultations, in some cases they will be necessary to determine precisely how certain measures are to be implemented effectively.

With a view to effectively implementing the Act as quickly as possible, the government’s intended sequencing for bringing the provisions of the 2024 Act into force is as follows:

We intend to commence the Act’s provision to remove the ‘2-year rule’ in January next year. This will mean that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold, giving more leaseholders control over their properties from the outset.

We will bring the Act’s right to manage provisions (expanding access, reforming its costs and voting rights) into force as a coherent package at the same time, in spring 2025, meaning more leaseholders in mixed-use buildings can take over management from their freeholders, and leaseholders making claims will, in most cases, no longer have to pay their freeholder’s costs.

We understand that for many leaseholders the cost of living will be their primary immediate worry. For too long, leaseholders have borne the brunt of opaque and excessive costs being passed on to them. We will go out to consultation very shortly on the detail of the Act’s ban on buildings insurance remuneration such as commissions for landlords, property managing agents and freeholders being charged through the service charge and their replacement with transparent and fair fees.

Next year, we will look to consult on the Act’s provisions on service charges and on legal costs, bringing these measures into force as quickly as possible thereafter. Once implemented, leaseholders will be able to more easily challenge service charges they consider unreasonable and landlords will be required to apply to the relevant court or tribunal for approval before they can pass legal costs from such challenges back to leaseholders.

The Act includes measures that will make it cheaper for leaseholders to enfranchise – buy their freehold or extend their lease, giving them security over their property in the long term. Next summer we will consult on the valuation rates used to calculate the cost of enfranchisement premiums. Parliament will then need to approve the secondary legislation that sets out the detail.

The government remain committed to protecting residential freeholders on private and mixed-tenure housing estates from unfair charges. Next year we will consult on implementing the Act’s new consumer protection provisions for the up to 1.75m homes that are subject to these charges, and bring these measures into force as quickly as possible thereafter. These include ensuring that homeowners who pay an estate management charge have better access to information they need to understand what they are paying for, the right to challenge the reasonableness at the First-tier Tribunal (in England), and to go to the tribunal to appoint a substitute manager.

Further reform of the leasehold system

While we must fix the Leasehold and Freehold Reform Act and implement its provisions as soon as possible, we have always been clear that the Act does not go far enough.

As part of our commitment to finally bring the feudal leasehold system to an end in this parliament, the government are determined to take action to address Law Commission recommendations omitted from the 2024 Act, to resolve a range of problems that legislation failed to grapple with, and to enact key pledges in our manifesto that it did not even engage with, such as making commonhold the default tenure.

In the King’s Speech, the government made clear it would publish an ambitious new Draft Leasehold and Commonhold Reform Bill in this parliamentary session that would be subject to broad consultation and additional parliamentary scrutiny. Our intention is that it will be published in the second half of next year.

A central focus of the Bill will be reinvigorating commonhold through the introduction of a comprehensive new legal framework. To set out our thinking in advance of the Bill and invite consultation and discussion about how we finally transition away from leasehold, we will publish a White Paper on reforms to commonhold early next year.

Alongside setting out our plans for a comprehensive new legal framework for commonhold, we will take decisive first steps to making commonhold the default tenure by the end of the parliament. To that end, we will consult next year on the best approach to banning new leasehold flats so this can work effectively alongside a robust ban on leasehold houses. We will seek input from industry and consumers on other fundamental points such as potential exemptions for legitimate use and how to minimise disruption to housing supply. We will also engage on the conversion of existing flats to commonhold.

The Draft Bill will also consider a number of vital reforms to the existing leasehold system. The government remains firmly committed to its manifesto commitment to tackle unregulated and unaffordable ground rents, and we will deliver this in legislation. We will remove the disproportionate and draconian threat of forfeiture as a means of ensuring compliance with a lease agreement. And we will consult on new reforms to the section 20 ‘major works’ procedure that leaseholders must go through when they face large bills for such works.

We also intend to act to protect leaseholders from abuse and poor service at the hands of unscrupulous managing agents.

Managing agents play a key role in the maintenance of multi-occupancy buildings and freehold estates, and their importance will only increase as we transition toward a commonhold future. We will strengthen regulation of managing agents to drive up the standard of their service. As a minimum, this should include mandatory professional qualifications which set a new basic standard that managing agents will be required to meet. We will consult on this matter next year.

You can see the full Statement via this link: