The landscape of homeownership in the United Kingdom is set to undergo a transformation as the government considers a plan to make all new houses freehold, aiming to phase out what some describe as the ‘feudal’ practice of leaseholds. Recent discussions surrounding the government’s Leasehold Reform Bill and its potential impact have sparked debates and raised questions about the future of property ownership in the country.
This article delves into the key points of the proposed reform, shedding light on its implications for homeowners and the housing market.
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Leasehold Reform Bill: Unveiling the Plan
The proposed Leasehold Reform Bill, outlines a significant shift in housing policy. Yet, there is one significant ommission from the leglisation that could lead to issues for Rishi Sunak’s government when attempting to pass the bill into law.
What Will be Included in The Leasehold and Freehold Reform Bill?
The government announced in the King’s Speech on 7th November 2023 the following reforms to current leasehold practices:
- The standard lease extension term will be increased from 90 years to 990 years for houses and flats, with ground rent reduced to £0
- A maximum time and fee for the provision of information to a leaseholder by the freeholder will be set with the intention of making buying or selling a leasehold property quicker and easier.
- Leaseholders’ service charges will need to be transparent
- It will be made less expensive and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold.
- A ban in England and Wales on new leasehold houses but not new leasehold flats
- The requirement for new leaseholders to have owned their house or flat for two years before they can benefit from these changes will be removed.
- Buildings insurance commissions for managing agents, landlords and freeholders will be replaced with transparent admin fees
- Access to “redress” schemes for leaseholders to challenge poor practice will be extended.
- The presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice will be removed.
- Freehold homeowners on private and mixed tenure estates will be granted the same rights of redress as leaseholders
- The Building Safety Act 2022 will be developed further to ensure freeholders and developers cannot escape their liabilities to fund building remediation work
- Leaseholders in buildings with up to 50% non-residential floorspace will be allowed to buy their freehold or take over its management (a jump from 25%).
Will ground rents be capped?
The government is consulting on a potential capping of ground rents. It’s a complicated and its felt that industry input is needed in order to find a suitable solution. The intention will be to implement a cap as part of The Leasehold and Freehold Reform Bill.
Will leaseholds be prohibited on all new flats?
The government decided not to include the abolishment of leaseholds on new flats. This seems to be at odds with their rhetoric which describes the leasehold arrangement as “outdated and feudal” and one that “needs to go.” There have been reports of a backbench rebellion by Tory MPs that could be supported by Labour. So a potential amendment to include new flats in the law could be possible
Addressing Concerns: The Need for Change
The move towards phasing out leaseholds is seen as a response to widespread concerns over the fairness and transparency of such arrangements. Critics argue that leasehold agreements can trap homeowners in a cycle of escalating costs, limiting their ability to fully enjoy the benefits of property ownership. The proposed reform aims to address these concerns by providing a more straightforward and cost-effective path to homeownership.
Impact on Homeowners: A Positive Shift
For prospective homebuyers, the shift towards freehold properties could be a positive development. Freehold ownership grants individuals outright ownership of both the property and the land it stands on. This contrasts with leasehold arrangements, where homeowners essentially rent the land from the freeholder for a specified period, often spanning several decades. With the potential abolition of leaseholds for new houses, buyers may enjoy increased control over their properties and fewer financial obligations tied to the land.
Though the government did reveal in late 2017 that it intented to prohibit leasehold houses being created. Subsequently the sale of new leasehold homes significantly reduced. As a result the forthcoming ban is will have limited impact other than to formalise the restriction in law.
Navigating the Lease Extension Process
While the proposed reform primarily focuses on new houses, existing leasehold homeowners may wonder about their options. There are significant measures that should help to improve the lease extension proces and empower current homeowners to better navigate their way through it.
In the quest to modernize the housing market and enhance fairness for homeowners, the proposed plan marks a significant step. If the Leasehold Reform Bill becomes law, although more could and should potentially be included, it will help reshape the dynamics of property ownership in the UK, offering a more equitable and straightforward approach to home ownership. As the discussions continue, the focus on the impact of these reforms on both new and existing homeowners underscores the importance of creating a housing market that prioritizes transparency and accessibility for all.