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

Reforms of the controversial leasehold system made it through parliament ahead of the general election but there wasn't time to include all parts of the legislation.

The Leasehold and Freehold Reform Act 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.

But there wasn't time to introduce a previously promised cap on ground rents for existing leaseholders, much to the dismay of campaigners.

"This limited bill is a muted win for leaseholders," says Linz Darlington, managing director of leasehold extensions specialists Homehold.

"While the legislation is not without merit, leaseholders must see it as a step in a journey rather than the destination itself."

What is the Leasehold and Freehold Reform Act?

The Leasehold and Freehold Reform Act 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.

A controversial way of calculating the cost of leasehold extensions, known as marriage value, was abolished under the law for leases under 80 years old but will remain for others with more time remaining.

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.

"Frustratingly, most of the changes which have been included will not come into effect immediately or even within a specified timeline," adds Darlington.

"These included-but-delayed changes include banning leasehold houses, and also abolishing marriage value which could make it cheaper for leaseholders with fewer than 80 years left to extend their leases."

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

Homeowners will have to wait for additional legislation to fill in the gaps.

"The bill's impact assessment suggests this won't be in place until 2026," says Darlington.

"This secondary legislation – which will set the key rates used to calculate lease extension and freehold purchase prices – will also have the potential to make lease extensions more expensive for those with leases above 80 years and lower ground rents."

The National Leasehold Campaign (NLC) said existing Leaseholders remain in a state of ‘leasehold limbo" wondering if they will be helped by this bill.

"It remains to be seen how far this bill will go but rest assured that there will still be some way to go to achieve our goal of abolishing leasehold and a move to commonhold," says the NLC.

"Abolishing the medieval leasehold system must be in all manifestos and any incoming government must prioritise this."

There is also a chance that the freehold sector will respond to this bill through litigation against reducing fees on lease extensions, which could hold up the reforms.