Your Guide To the Leasehold and Freehold Bill
Everything you need to know about reforms to leaseholds and freeholds in 2024.
The Leasehold and Freehold Reform Bill was unveiled in November 2023 and seeks to improve homeownership for leaseholders in England and Wales. The Bill is currently making its way through Parliament.
The Conservative Party’s General Election manifesto first set out proposals to “crack down on unfair practices in leasehold” by making it easier for leaseholders to extend their leases, buy their freehold and take over building management.
Here is an overview of the current situation and what this Bill will change.
- 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, which will be introduced 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.
As part of the Leasehold and Freehold Reform Bill 2023-24, the Government is looking to restrict ground rents for existing leaseholders. Among the options being considered are plans to:
- 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 ended on 17 January 2024, and further news will be released in the future.
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.