The Government will make it cheaper and easier for leasehold homeowners to buy the freehold of their properties, according to the King’s Speech in Parliament today.
King Charles III also announced that further reform will be introduced to help end the exploitation of millions of leaseholders through punitive service charges.
Other rip-off leaseholder charges are also expected to be included as part of a bill to reform the leasehold system.
This will include capping existing ground rents to ensure leaseholders are protected from making payments that require no benefit or service in return and can cause issues when homeowners want to sell up.
King Charles III announced that reform will be introduced to help end the exploitation of millions of leaseholders that are subject to punitive service charges
The plans are also expected to make provisions to enable more leaseholders to extend their lease, with the standard lease extension term being increased from 90 years to 990 years.
The changes could make it easier for people to sell and remortagage leasehold homes.
A ban on the creation of new leasehold houses in England and Wales is also being proposed, though flats would continue to be sold leasehold under the plans.
It will mean, other than in exceptional circumstances, new houses in England and Wales will now be freehold from the outset.
What are the Government’s new leasehold reforms?
Timothy Douglas, head of policy and campaigns at the estate agent membership body, Propertymark, said: ‘Many leaseholders will be relieved to hear plans for new legislation to further reform the leasehold system.
‘However, the UK Government must ensure any legislation to abolish leaseholds is fit for purpose.
‘There are no reports yet that have confirmed what impact capping ground rents will have on service charges, and it is important to consider that every development is individual, and some may still require aspects that justify specific service charges.
‘As every development will likely have unique characteristics by design, there may well be a need for sensible provision and certain clauses or exemptions where an ongoing management fee might be appropriate.
‘There may well be communal aspects of a development design where a management charge might still be relevant for the upkeep of an area for example.’
The Government will make it cheaper and easier for leaseholders to purchase their freehold, according to the King’s speech in Parliament today
Jeremy Leaf, north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors, suggested the proposals to ban new leasehold houses do not go far enough.
‘While we welcome a ban on new leasehold houses, it is disappointing that flats are not included in the legislation, as we wanted to see new and existing flats and houses included,’ he said.
‘Flat owners and those considering buying flats are looking for change as much as those purchasing houses, particularly given that flat owners often also have cladding issues to contend with.
‘It’s no surprise that many are thoroughly fed up with everything.’
Mark Wilson, managing director of specialist leasehold surveyors Myleasehold and member of the Association of Leasehold Enfranchisement Practitioners, questioned how easy the changes would be to implement.
‘It is crucial that the Government addresses potential reform with caution,’ said Wilson.
‘Other than the easy win of changing lease terms from 90 to 990 year term, the proposed content, such as we are aware of to date, is random and confusing and this is exacerbated by leasehold being an emotive issue.
‘With so many moving parts and with so much regulation already in place, including the administrative chaos of the Building Safety Act, I am concerned about the ability to deliver any meaningful reform within the time remaining this Parliament.’
In the hundreds: The average ground rent is between £200 and £500 per annum, according to Tayntons Solicitors
There are also suggestions that the Government is proposing to cap all existing ground rents at a peppercorn rate.
The Leasehold Reform (Ground Rent) Act banned ground rent being charged on new leases on homes purchased after 30 June 2022. However, it doesn’t yet apply to existing leases.
If leasehold ground rents are changed to a ‘peppercorn rent’ it will effectively mean owners no longer pay any ground rent to the freeholder.
Mark Chick, director of The Association of Leasehold Enfranchisement Practitioners, says the changes will reallocate wealth from freeholders to leaseholders
At present most leaseholds are subject to far higher ground rents. According to Tayntons Solicitors, the average is between £200 and £500 per annum.
This is one of the areas in which greater consideration of the detail is required, according to members of ALEP.
Mark Chick, director of ALEP and a partner at Bishop & Sewell Solicitors said: ‘We anticipate that this will mean a cap on the level of a ground rent that can be collected, perhaps by reference to a fraction of the capital value of the property.
‘While there are clear benefits in doing so, particularly for leaseholders with high or uncertain ground rents, this could substantially reallocate wealth from freeholders to leaseholders.
‘I wonder if the Government has fully considered the implication on private pensions, for example – many of which have considerable investment in ground rents.
‘The political implications of this – specifically among the PM’s own party – could be considerable.’
