Property owners stuck in leasehold homes that are hard to sell or remortgage could be set for new protections under Labour.
The new Labour government’s legislative priorities were revealed in the King’s Speech this morning, including further steps on leasehold reform.
It comes as the Leasehold and Freehold Reform Act was rushed through Parliament in May before the general election, leaving plenty of gaps in the legislation.
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Labour appears committed to picking up where the Tory government left off though, after it included a Draft Leasehold and Commonhold Reform Bill in the King's Speech.
It promises to “bring the feudal system of leasehold to an end.”
For many years, owners of leasehold houses and flats have faced high service charges and barriers to extending their leases, known as enfranchisement, making it hard to sell and remortgage homes.
The Leasehold and Freehold Reform Act aimed to address some of these issues by banning the sale of new leasehold homes and boosting the rights of leaseholders to acquire their freeholds, to extend their leases and to collectively take over management of the building.
But in the rush to pass the legislation in May, it missed other pledges such as capping ground rents.
Labour’s legislation aims to fill the gaps and even vows to go further.
What is the Draft Leasehold and Commonhold Reform Bill?
The Draft Leasehold and Commonhold Reform Bill aims to continue leasehold reforms to help the millions of people with leasehold homes in England and Wales.
One of its main features is to bring forward reform recommendations made by the Law Commission in 2020, which highlights the “inherent unfairness of the leasehold tenure, and the costs, complexity, uncertainty and inconsistencies of enfranchisement.”
The Bill promises to “act quickly to provide homeowners with greater rights, powers and protections over their homes.”
Ground rents
Leaseholders pay ground rents to cover the cost of the land their property is on.
Government data suggests 86% of leaseholders pay a ground rent, averaging almost £300 per year in England.
But these costs can rapidly escalate and become unaffordable over time for leaseholders. In a recent survey by agency trade body Propertymark, 78% of their members reported that a leasehold property with an escalating ground rent will struggle to sell, even if priced correctly.
The previous government was consulting on capping ground rents but this didn’t make it onto the statute book.
The latest legislation proposes “regulating ground rents for existing leaseholders so they no longer face unregulated and unaffordable costs.”
Leasehold flat ban
Leasehold houses were banned under the previous reforms but the new legislation goes further by saying it will restrict the sale of new leasehold flats.
It is unclear how this will work as it could mean passing on the costs of the land to homebuyers.
The government says it will consult on the best way to achieve this, “so that generations to come will benefit from absolute homeownership.”
Property management
The new Labour government appears keen to promote other ways of managing a property.
Rather than relying on property management companies, it suggests giving property owners more abilities to take over the freeholders’ building management functions, known as right to manage.
The government will also consult on a new legal framework for commonhold ownership, giving property owners joint responsibility for common parts of a block.
Private estates
The current leasehold reforms don’t apply to the 1.75m homes on private estates.
The Competition and Markets Authority estimates that average costs are around £350 per annum but the government has said it will consult on addressing unfair fees in this area.
The risk of forfeiture
Currently, if a leasehold owner breaches a lease, such as by not paying charges, the freeholder can take ownership.
The government warns that leaseholders are often threatened with forfeiture and the loss of their home for low outstanding sums as little as £350.
While recognising that landlords need an effective way to recover debts, the Bill vows to ensure “leaseholders are protected against losing savings they have in their home for potentially small unpaid debts.”
Leasehold campaigners have described the new legislation as a "momentous day."
Katie Kendrick founder of the National Leasehold Campaign, says: “Over the years we have heard many Queens / King’s speeches promising reforms but today’s commitment from the new government feels different. It feels like meaningful change is eventually going to be delivered.
"It is clear there is a lot of work still to do on the many issues of leasehold but it's refreshing to know that the new government is determined to pick up the outstanding issues, tackle them head on and deliver once and for all."
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