If you own a buy-to-let flat or have a portfolio of apartments in fairly new blocks, there’s a high chance you’ll own a leasehold property. The leasehold system has long been the scourge of the property investment world, with short leases, lease extensions and freehold purchases causing more than just a headache.
In a bid to level the playing field between freeholders and leaseholders – and maybe to win a few votes ahead of the General Election – a new Leasehold Bill has been announced. Here are 13 things landlords need to know:-
- The Leasehold Bill has been formally announced: when King Charles III officially opened the new session of Parliament on 7th November 2023, he was obliged to read out the Government’s objectives for the year ahead. Part of the King’s duty was to read out the 21 Bills that will progress and on the list was the Leasehold Bill.
- We may see the Leasehold Bill become law in 2024: with a General Election widely predicted for next year, the ruling Conservative party will be keen for all introduced Bills to receive Royal Assent – that’s when proposals become law – before the big vote takes place.
- In the future, newly built houses will not be leasehold: although it is not so common to build houses and offer them for sale leasehold, the Government has noted it is a growing trend among some housebuilders. Therefore, it is using the Leasehold Bill to ensure all newly created homes will be sold on a freehold basis.
- Flats will continue to be built as leasehold properties: in a very disappointing move, the Leasehold Bill stops short of proposing that newly built flats should also be sold on a freehold basis. Flats and apartments will continue to be offered as leasehold properties, unless a share of the freehold or a commonhold option is proposed.
- There will be no change to existing leases: those already living in or renting out a leasehold property will not benefit from the Leasehold Bill as it currently stands as there are no plans to scrap existing lease arrangements.
- The length of standard lease extensions will grow: at present, the standard lease extension term is 90 years but the Government thinks this is too short. The Leasehold Bill proposes that the new standard lease extension term becomes 990 years
- Leaseholders won’t have to wait two years to extend their lease or buy the freehold: leaseholders currently have to have owned the property for two years before they can apply to extend their lease or buy the freehold. As set out in the Leasehold Bill, this time limit will be abolished.
- Ground rent may be a thing of the past: while the Leasehold Reform (Ground Rent) Act 2022 ended ground rents for most new, long residential leasehold properties in England and Wales, existing leaseholders are still paying a fee in return for no perceived service. The Leasehold Bill says existing ground rents should be capped at a ‘peppercorn’ rate, which is usually one pound and a sum the freeholder may choose not to collect.
- Leaseholders in mixed-tenure, mixed-use buildings will benefit: the Leasehold Bill sets out to help leaseholders residing in buildings where there is a mix of flats, offices and shops. It should become easier to buy the property’s freehold or take over its management.
- Extending a lease or buying a freehold should become more accessible: the Leasehold Bill sets out a maximum time and fee for the provision of information required to make a sale to a leaseholder by their freeholder. It also says there should be greater transparency over leaseholders’ service charges and that is should not be presumed that leaseholders will pay their freeholders’ legal costs when challenging poor practice. Additionally, the Bill states that building insurance commissions for managing agents should be removed. Together, these changes should make extending a lease or buying a freehold a quicker, simpler and cheaper process.
- Freeholders will be held to account when it comes to standards: the Leasehold Bill wants to improve standards in the leasehold sector by building on measures in the Building Safety Act 2022. New legislation will ensure freeholders and developers can’t escape liability for remediation work.
- Unhappy leaseholders will be heard: detailed in the Leasehold Bill is the intent to extend current redress schemes to leaseholders so they can challenge poor practice.
- Wales may follow suit: although The Leasehold Reform (Ground Rent) Act 2022 applies in Wales, the new Leasehold Bill pertains exclusively to England. The Welsh Government is pursuing its own set of similar leasehold reforms. There is no true freeholder/leaseholder system in Scotland and its approach to property ownership remains unchanged.
If you would like Landlord Buyer to explain how the Leasehold Bill may affect any leasehold properties you own, please get in touch. If the current lease status of your property is of concern, don’t forget we buy short lease properties and portfolios of flats where the leases are below 80 years.