Government unveils leasehold reforms - how will it help homeowners?

Long-awaited legislation on reforming the leasehold system has been unveiled in Parliament - here is how it could help you

Leasehold contract
(Image credit: Getty Images)

Millions of people stuck with leasehold homes that they are struggling to remortgage or sell could be set for some respite with new reforms expected to be announced in parliament today.

The government will unveil the long-awaited Leasehold and Freehold Bill this afternoon, which aims to address long-standing issues that leaseholders have faced such as high service charges and barriers to extending their leases.

It is the latest attempt to reform the leasehold system of property ownership. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The government banned ground rents on new leases for homes in 2022 but the new legislation aims to help homeowners struggling with current leases to address issues such as unfair terms and high costs.

“People work hard to own a home,” says housing secretary Michael Gove.

“But for far too long too many have been denied the full benefits of ownership through the unfair and outdated leasehold system.

“Today marks a landmark moment for millions of leaseholders across the country, as we unveil laws to deliver significant new rights and protections, slash unfair costs and crack down on exploitation.”

Here is how the latest reforms aim to help leaseholders.

Service charges

Leaseholders pay service charges to freeholders or managing agents to cover the upkeep and maintenance of communal areas.

But many complain that the charges often don’t reflect the true cost of repairs or renovations.

The new legislation aims to boost transparency by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged. 

Leaseholders will also be given access to a redress scheme to challenge poor practice.

Campaigners also highlight high commissions that are paid to brokers for buildings insurance.

The government has also said it will ban “opaque and excessive buildings insurance commissions,” replacing these with “transparent and fair” handling fees.  

Lease extensions

A lease usually lasts for between 99 and 125 years but as they get shorter, typically below 80 years, it can be harder to remortgage or sell.

A lease can be extended but under the current system, leaseholders have to cover the freeholder’s legal fees and there are complicated calculations on how much the extension will cost, which deters many.

The government says the reforms will make it cheaper and easier for people to extend their lease or buy their freehold so leaseholders pay less to have more security in their home.  

It will increase the standard lease extension term to 990 years for houses and flats, up from 50 years in houses and 90 years in flats.

Leaseholders will also no longer have to pay their freeholder’s costs when making a claim. 

The Bill also removes the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy their freehold. 

Buying and selling leasehold homes

Leasehold homeowners can face delays in selling their home as conveyancers have to track down and analyse lease terms.

Some conveyancers even avoid this work due to extra complications from the Building Safety Act that require documents showing fire safety measures in blocks.

It can also take a long time to receive the lease documents and freeholders may pay high fees for them.

The reforms aim to address this by setting a maximum time and fee that freeholders and managing agents can charge for this information.

The sale of new leasehold houses will also be banned.

Separately, the government is consulting on options to cap ground rents for existing leases.

“Now more than ever we need our elected politicians and peers to work together to ensure this Bill succeeds,” says Cath William, co-founder of the National Leasehold Campaign.

“Many existing leaseholders remain trapped, and this Bill will be life changing for them.”

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.