Falling flat: housing reform bill could ban new leasehold homes but flat owners are left out in the cold

Only new houses and not flats would be sold as freehold under the new bill (Ben Allan / Unsplash)
Only new houses and not flats would be sold as freehold under the new bill (Ben Allan / Unsplash)

A new bill announced in today's King's Speech would only offer a sliver of hope for some of the many London homeowners stuck in leasehold misery.

The Leasehold and Freehold Reform Bill could ban the creation of new leasehold houses in England and Wales. Other than in exceptional circumstances, new build houses London would be freehold from the outset.

However, the bill does not appear to include flats, and 63 per cent of London flats are owned on a leasehold basis.

"While we welcome a ban on new leasehold houses, it is disappointing that flats are not included in the legislation, as we wanted to see new and existing flats and houses included," said north London estate agent Jeremy Leaf.

"Indeed, flat owners and those considering buying flats are looking for change as much as those purchasing houses, particularly given that flat owners often also have cladding issues to contend with," he added.

"It’s no surprise that many are thoroughly fed up with everything."

Earlier in the year the secretary of housing Michael Gove suggested that the government would ban leaseholds altogether, but this plan seems to have vanished entirely.“It is noteworthy that the King’s Speech did not mention the abolition of leasehold, but without making steps towards this, any benefit to existing leaseholders will be limited," said Linz Darlington, founder of lease extension specialists Homehold.

“To genuinely improve the situation that most leaseholders find themselves in, we need both parties to campaign at the next general election with a compelling alternative for flats," Darlington added.

Reforming the rip-offs?

Rip-off charges are also on the agenda for the Leasehold and Freehold Reform Bill, with a consultation expected on capping existing ground rents.

This aims to ensure leaseholders are protected from making payments that require no benefit or service in return.

"Freeholders see leaseholders as an income stream. You are a customer in your own property," explained Darlington.

“A leaseholder pays ground rent to the freeholder but gets nothing in return. It is literally money for nothing. Despite this, the Government’s promise to abolish ground entirely is unlikely to benefit leaseholders – because it is unlikely to ever make it onto the statute books.

Escalating ground rents can cause issues when homeowners want to sell up, as mortgage providers are unwilling to lend on them.

Reforms to make it easier for leaseholders to purchase their freehold and tackle punitive service charges were outlined in the King’s Speech. The changes could make it easier for people to sell their properties and get mortgages.A standard lease extension term will be increased from 90 years to 990 years for both houses and flats, with ground rent reduced to £0.

Leasehold horror stories

The current leasehold system leaves many homeowners trapped in properties or facing high costs to buy their freeholds, the Government acknowledged.

In one case it highlighted, someone bought a flat in 2008 with a £300 ground rent and a 10-year doubling clause, meaning the homeowner now pays £600. The homeowner was quoted £25,000 to extend the lease.

In another case, a homeowner who bought a new-build flat in 2020 has seen their ground rent rise from £350 to more than £450 per year.

Around 752,000 households with children and 1.48 million over-65s are leasehold homeowners, according to the Government.

Just over a fifth (22 per cent) of home sales in 2019 were leasehold, or around 238,000 transactions in total, Land Registry figures show.

A requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from the changes will be removed, so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.

Rise of the freeholder

The changes will also enable leaseholders in buildings with up to 50 per cent of non-residential floorspace to buy their freehold or take over its management.

This will mean an increase to the 25 per cent non-residential limit, which prevents leaseholders in buildings with a mix of homes and non-residential spaces such as shops and offices from buying their freehold or taking over management of their building.

The Government also plans to improve leaseholders’ consumer rights by requiring transparency over service charges in a standardised, comparable format. This will help leaseholders to challenge any charges which they feel are unreasonable.

Access to redress schemes will also be extended, with more freeholders being required to belong to redress schemes.

A presumption that leaseholders will pay their freeholders’ legal costs when challenging poor practice will also be scrapped.

The legislation follows the Leasehold Reform (Ground Rents) Act 2022, which put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales.

Mixed reactions

While some property industry members welcomed the Leasehold and Freehold Reform Bill, others found it lacking.

"Today’s announcement of a Leasehold and Freehold Bill could bring good news for property valuers, conveyancers and the 4.9 million homeowners in England and Wales under with leases – or it could fuel confusion, cost and controversy," said Mark Chick, partner at Bishop & Sewell LLP Solicitors.

"Whilst the long-term aim might well be to make all flats freehold or commonhold, at the moment it simply isn’t possible to make new flats freehold until the work necessary to make the existing system of commonhold fit for purpose is complete."Ed Atkin, residential property partner at law firm, Shakespeare Martineau, said: "property buyers will be celebrating the plans to make housing more affordable by changing the law relating to leasehold ownership.

"The new Leasehold Reform Bill is hoped to be passed into law before the next general election and is set to make much needed changes relating to leasehold ownership.

“We will have to wait for the full details of the proposed legislation to be published but it seems this is one manifesto pledge that the government is keen to honour.”

Mark Wilson, managing director of myleasehold said: "While reform to the leasehold system is very much welcome, it is crucial that the Government addresses potential reform with caution."

"Other than the easy win of changing lease terms from 90 to 990 year term, the proposed content, such as we are aware of to date, is random and confusing and this is exacerbated by leasehold being an emotive issue," added Wilson.

"With so many moving parts and with so much regulation already in place, including the administrative chaos of the Building Safety Act, I am concerned about the ability to deliver any meaningful reform within the time remaining this Parliament."