Leasehold & freehold reform – next steps

On 21 November 2024 the Ministry of Housing, Communities and Local Government published a press release giving an indication of the time frames and next steps for residential leasehold and freehold reforms.

The press release is based on a written statement given by Matthew Pennycook, Minister of State for Housing and Planning, the purpose of which was to provide an update to parliament ‘on the steps the government intends to take to implement those reforms to the leasehold system already in statute and to progress the wider set of reforms necessary to end the feudal leasehold system for good’. Although the statement reaffirms a commitment to ‘do what is necessary to finally bring the feudal leasehold system to an end’ it does also contain an acknowledgement that reform is a complex task which requires time and care to ensure reforms are ‘fit for purpose’. As evidence of this the government notes it has been informed of ‘serious flaws’ in the Leasehold and Freehold Reform Act 2024 which it states need to be rectified by way of primary legislation.

The update also states that in passing an Act which implemented ‘only a select number of Law Commission recommendations relating to enfranchisement and the right to manage’ the previous government made ‘the process of holistic and coherent leasehold and commonhold reform more challenging’.

Implementing measures under the Leasehold and Freehold Reform Act 2024

The government states it will:

• In January 2025 bring forward provisions under the Leasehold and Freehold Reform Act 2024 to remove the current two year ownership requirement for leaseholders before they have the right to extend their lease or buy their freehold.
• In the Spring, introduce a package of measures which will expand access and reform the cost rules and voting rights where leaseholders claim the ‘Right to Manage’. This will allow leaseholders in buildings with up to 50 per cent non-residential floorspace to buy their freehold or take over the building's management.
• Consult ‘very shortly’ on the ‘detail of the Act’s ban on buildings insurance remuneration such as commissions for landlords, property managing agents and freeholders being charged through the service charge and their replacement with transparent and fair fees’.
• Consult ‘next year’ on making it easier to challenge unreasonable service charge costs and legal costs and then implement these measures. The statement notes that leaseholders will be able to more easily challenge service charges and landlords will be required to apply to the relevant court or tribunal for approval before they can pass legal costs from such challenges back to leaseholders.
• ‘Next summer’ consult on the valuation rates used to calculate the cost of enfranchisement premiums. The statement notes that parliament will then need to approve the secondary legislation implementing this, as well as fixing the Act’s ‘serious flaws’ in relation to valuation in further primary legislation before implementing these measures as a package.
• Consult ‘next year’ on implementing the Act’s new consumer protection provisions so those who pay freehold estate charges have more transparency of what they are paying for and the right to challenge at the First Tier Tribunal. Again there is a commitment to implement measures ‘as quickly as possible thereafter’.

The government also views that the Leasehold Advisory Service has a crucial role to play in advising tenants of their rights and will ‘set out further detail in due course about how we believe it can most effectively do so’.

Further reforms – including making commonhold ‘the default tenure’

In addition to setting out next steps in relation to implementation of the Leasehold and Freehold Reform Act 2024, in line with its manifesto commitments, the statement confirms the government be looking to go further in relation to reforms in this area.

• Perhaps most notably the government states that it will introduce a new draft Leasehold and Commonhold Reform Bill in the second half of next year. The draft Bill was set out in the King’s speech and is identified as a ‘crucial step towards the next generation of homeowners benefitting from a more modern, functional and fit-for-purpose commonhold system’. The Bill’s focus will be the reinvigoration of commonhold through the introduction of a comprehensive new legal framework. As part of this process the government has stated it will publish a white paper early next year focussed on commonhold reform and the government’s ‘thinking’ in this area. The statement notes that the new bill will also look to deliver on the government’s manifesto commitment to ‘tackle unregulated and unaffordable ground rents’ as well as looking at forfeiture and other measures to bolster leaseholder’s rights. Again these measures were included in the notes to Bill in the King’s speech.
• The government also commits to specific consultations next year on:

1. the ‘best approach to banning new leasehold flats’. The government states it will also ‘engage’ on the conversion of existing flats to commonhold’. This will sit alongside developments in the commonhold space and the intention to make commonhold the default tenure by the end of the parliament.

2. reforms to the section 20 consultation process under the Landlord and Tenant Act 1985.

3. strengthening regulation of managing agents including mandatory professional qualifications to achieve a new ‘basic standard’ all managing agents must meet.

4. the ‘legislative and policy options to reduce the prevalence of private estate management arrangements’ – often referred to by the government as ‘fleecehold’.