Everything you need to know about leasehold and freehold reform in 2024.
The Leasehold and Freehold Reform Bill aims to improve homeownership for leaseholders in England and Wales. The Bill is currently making its way through Parliament, with the latest consultation discussions taking place in March 2024.
Leasehold reform first became a topic of discussion in the Conservative Party’s General Election manifesto in 2017. This was when the party first set out its proposals to “crack down on unfair practices” by making it easier for leaseholders to extend their leases, buy their freehold and take over building management.
Here is an overview of the leasehold bill, and what will change for property owners.
- The difference between leaseholds and freeholds
- Changes being introduced by the Leasehold and Freehold Reform Bill 2023-24
- What is ground rent?
- What isn’t included in the Bill?
- When will the Bill come into effect?
The difference between leasehold and freehold
Whether a homeowner owns the building and land it sits on depends on whether there is a leasehold or freehold on the property. But what does this mean?
When a property has a leasehold, it means that you own the property but not the land. The leases are usually long-term and typically range between 99-125 years.
The leaseholder has a contract with the freeholder that explains their legal rights and responsibilities, including to:
- Pay maintenance fees, service charges and insurance
- Pay the annual ground rent to the freeholder
- Ask for permission from the freeholder for any major works
- Adhere to restrictions such as not owning pets or subletting
A freeholder, otherwise known as a landlord, owns the land, structure, and common part of the property. There is no time limit on the ownership of the freehold but there are responsibilities the freeholder has to the property, such as:
- Maintaining the common areas, such as the entrance, exterior walls and roof
- Managing utility supplies for communal areas
- Collecting ground rent and service charges from leaseholders
- Ensuring the property meets health and safety regulations
Changes being introduced by the Leasehold and Freehold Reform Bill 2023-24
Following the ‘Fixing our broken housing market’ White Paper in 2017, the Government has been looking to ‘promote fairness and transparency for the growing number of leaseholders’.
This new Bill will implement long-term changes in England and Wales such as:
- Increasing the standard lease for homes and flats to 990 years
- Removing the marriage value towards the end of the lease
- Making buying or selling a leasehold property quicker and easier
- Requiring transparency over service charges and administration fees
- Scrapping the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice
A consultation closed in January 2024 to discuss an introduction of a ground rent cap for existing leaseholders. However, it is unsure whether it will still be implemented alongside this Bill.
What is ground rent?
Essentially, ground rent is the charge from the freeholder to rent out their land. This can be a fixed rate during a lease or can escalate over time.
The Leasehold Reform (Ground Rent) Act 2022 effectively abolished ground rent on new leases.
Originally the Leasehold and Freehold Reform Bill 2023-24 planned to reduce ground rents for existing leaseholders to zero.
However, in March 2024 following a consultation on the Leasehold and Freehold Bill, it was reported that Michael Gove, Secretary of State for Levelling Up, Housing and Communities, may abolish the introduction of "peppercorn" rates.
A compromise for removing ground rents is instead introducing a £250 annual cap. This would minimise the ground rent amount paid to freeholders, while also maintaining their predictable income stream.
Other plans being considered alongside the Leasehold and Freehold Bill include:
- Put a ground rent cap that can never be exceeded
- Limit ground rents at a percentage of the property value
- Freeze ground rents at current levels
A consultation for this Bill finished on 17 January 2024 and the Government is currently considering responses with more possible changes coming up soon.
What isn't included in the Bill?
Despite being mentioned in the most recent King’s Speech, a ban on new leasehold properties was not included in the original draft of the Bill. Other changes to extend the provisions of the Building Safety Act were also omitted.
However, the Government has said that it plans to amend the Bill, during its passage through Parliament, to include both these elements.
When will the Bill come into force?
The Bill was originally published in November 2023 and is part way through its passage through the House of Commons. It will also need to be scrutinised by the House of Lords, and complete this process before the General Election before it can finally become law.
Assuming the Bill does pass through both the Commons and Lords before the election, its provisions will come into effect on a future, currently unspecified date appointed by the Secretary of State.
This article is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.
