Leasehold reforms progress through Parliament but have they been watered down?

The Leasehold and Freehold Reform Bill has passed its third reading in the House of Commons but campaigners feel let down

Glasses on lease contract
(Image credit: Getty Images)

Government reforms of the controversial leasehold system have moved a step closer but campaigners warn that hundreds of amendments during parliamentary debates have weakened the promised changes.

The Leasehold and Freehold Reform Bill is one of the government’s key pieces of legislation, aiming to address long-standing issues that owners of leasehold houses and flats have faced such as high service charges and barriers to extending their leases.

Homeowners and campaigners complain that these issues make leasehold properties harder to remortgage or sell.

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The government already banned ground rents on new leases for homes in 2022 but the new legislation aims to provide support for those with current leases who are struggling with unfair terms and high costs.

The Bill promises to boost the rights of leaseholders to acquire their freeholds, to extend their leases and to collectively takeover management of the building.

It also promised to reduce ground rents and regulate service charges.

Speaking as the Bill passed its third reading to the House of Commons yesterday and was sent for review by the House of Lords, housing minister Lee Rowley, said the reforms would “help to reduce unnecessary stress, uncertainty and wasted time by reforming a labyrinthine system and making it better.”

But activists from the National Leasehold Campaign have warned that leaseholders have been let down following several amendments that have made the legislation “weaker than it needed to be.”

What is the Leasehold and Freehold Reform Bill?

The Leasehold and Freehold Reform Bill is the government’s latest attempt to reform the leasehold system.

It promised more transparency on service charges by creating a redress scheme to challenge costs and calling for freeholders and managing agents to issues bills in a standardised format that are easier to understand.

The legislation also aims to make it cheaper for homeowners to extend their lease or buy their freehold.

Standard lease extension terms will be increased to 990 years for houses and flats, up from 50 years in houses and 90 years in flats, while leaseholders won’t have to pay their freeholder’s costs when making a claim anymore.

Leaseholders also will no longer need to have owned their house or flat for two years before they can extend their lease or buy their freehold. 

The reforms aim to reduce regular delays in selling a leasehold property 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 and the government is separately consulting on options to cap ground rents for existing leases.

Why are leaseholders unhappy with the reforms?

Housing Secretary Michael Gove had previously promised to abolish the leasehold system ahead of the introduction of this legislation.

But this promise has not been delivered in the proposed law, particularly for existing leaseholders.

Campaigners warn that hasn’t been enough time to scrutinise amendments introduced by Tory MPs properly and proposed changes put forward by Labour were mostly rejected.

For example, while a ban on new leasehold houses was mistakenly missing from initial drafts of the legislation, this was addressed through amendments.

However, the Bill has included exemptions for retirement housing and land that has already been leased.

Labour tabled an amendment to ensure that the key rates in the calculations for extending a lease or buying a freehold are not made more punitive to leaseholders than they currently are, but this was voted down by MPs.

Meanwhile, Tory MP Richard Fuller has asked ministers at the next stage to consider if a ban on marriage value – a calculation used to determine an amount owed to the freeholder based on the difference in the value of the property before and after the lease extension – should be limited only to leases currently above 80 years.

MPs also opposed extending a right to first refusal to buy a flat freehold to house owners.

Other loopholes and unfair terms remain.

Lease extension specialist Homehold highlighted that under current law, a leaseholder can have their property forfeited for certain breaches of the lease. An amendment from Labour to abolish this was voted down, despite MPs hearing a story where a pensioner had their flat in London forfeited for a service charge dispute of just £6,000.

"Despite its meteoric pace through the legislative process so far, it is very clear just how contentious the Bill is,” says Linz Darlington, managing director of Homehold.

"The Bill has lacked scrutiny as it has gone through the Commons, with the government chastised for tabling 100 amendments in the last week, with limited time for these to be reviewed.”

What's next for the Leasehold and Freehold Reform Bill?

The legislation will now be considered by the House of Lords before it is sent back to MPs in the House of Commons to consider any amendments and to pass the legislation into law.

“It will be interesting to see the amendments the Lords make: considering the vested property interests it seems unfathomable that they’ll be less contentious or divided than those from the Commons,” adds Darlington.

Marc Shoffman

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.