Leasehold and Freehold Reform Bill

The Government has now introduced the Leasehold and Freehold Reform Bill as proposed in the King’s Speech in November. This has passed its first two readings in the House of Commons and is now at report stage. The bill seeks to introduce a number of changes affecting lease extension and acquisition of freehold (enfranchisement or collective enfranchisement for buildings divided into flats or mixed use) of both houses under the Leasehold Reform Act 1967 (1967 Act) and flats under the Leasehold Reform Housing and Urban Development Act 1993 (1993 Act) as well as other more general provisions.

Some highlights in relation to the 1967 and 1993 Acts:

• No two year qualifying period of ownership before exercising rights to extend/acquire freehold
• Collective enfranchisement will apply to mixed residential and other use blocks where the non-residential element is less than 50% (current limit 25%)
• For purposes of lease extension of both houses under the 1967 Act and flats under the 1993 Act, the new extended term proposed is 990 years (currently 50 and 90 respectively) at a peppercorn (nil) rent (currently provision for increased rent at end of original term in case of houses).
• Amendments to cover costs payable by leaseholder on acquiring freehold or extending lease and unsuccessful claims
• New method of calculating price payable for enfranchisement or lease extension including “standard valuation method” compulsory in most cases with limited exceptions, e.g. if unexpired term of lease five years or less.
• Assumptions applied so no marriage or hope value payable.
• Right to hold over under Local Government and Housing Act 1989 only to be taken into account if unexpired term five years or less and right likely to be exercised.  In any other case must not be taken into consideration in determining market value
• Notional cap on annual rent for purposes of determining lease’s term value under standard valuation method
• Deferment rates under standard method to be prescribed and reviewed every ten years

The bill also introduces other, more general changes, such as:

• Leaseholders to have right to give rent variation notice to reduce rent to a peppercorn (nil) on payment of a premium; this may assist leaseholders who are unable to afford  to pay price for extended lease or freehold
• The regulation of service charges
• Estate management charges (whether obligation under rentcharge, lease or any other obligation) – for example, communal grounds/access roads managed for a number of dwellings:
  • Chargeable costs incurred by estate manager limited to relevant costs (reasonably incurred and services/works of a reasonable standard)
  • Consultation requirements and time limits similar to existing provisions in relation to leasehold service charges
  • Code of management practice
• Rentcharges limiting remedies for regulated rentcharges (not within scope of permitted rentcharges under section 2 of the Rent Charges Act 1977) and requirements for demands/notice etc

The bill takes forward the aims expressed in the King’s Speech to continue leasehold reform and make it easier for leaseholders to purchase their freehold or extend their lease. The bill also extends the regulation of management and charges for common facilities such as grounds/estate roads.

Follow along for further updates as the bill progresses.