Leasehold Reform in 2024: What You Need To Know
The King’s speech promises sweeping reforms to the 400 year old home-ownership landscape for future generations, but what does all this really mean for ordinary home owners today – and should they really put their freehold purchase plans on hold?
LeaseHOLD, FreeHOLD, CommonHOLD: Who has a HOLD over you?
For several years now and most recently in the King’s Speech 2024, the UK Government has been promising sweeping, generational changes to the commonhold, leasehold and freehold markets, intended to impact the lives and finances of almost 5 million leaseholders and their descendants.
We take a look at the often forgotten practical impact on ordinary people’s lives and the law of unintended consequences and conclude that, current and future leaseholders, now faced with years of uncertainty, will not benefit from putting their lives, their rights and their investment plans on hold.
Holding Court
After years of review by the Law Commission, The Department for Levelling Up, Housing and Communities concluded in 2023 that the Government should “restore true home ownership to millions of people and end the reign of rip-off freeholders and incompetent profiteering management companies”.
In 2024, the then Conservative Government rushed through The Leasehold and Freehold Reform Act, almost universally criticised for different reasons across the spectrum by campaigners, ordinary leaseholders, freeholders, investors and home builders alike.
In the King’s speech 2024, the new Labour Government promised to implement and extend the reforms started by the outgoing Conservative Government, introducing yet more legislation to re-invigorate an existing but almost defunct form of home ownership, Commonhold, via a new Leasehold and Commonhold Reform Bill.
Holding Tight?
So why does everyone who has anything to do with the residential property sector report a depressing feeling of deja-vu? Here’s a quick timeline recap.
Round 1: 2022
The Government promised to abolish the archaic Ground Rent “stealth tax and to put an end to this outdated practice” but when the Leasehold Reform (Ground Rent) Act 2022 came into force, only ground rents on new homes were banned, leading many to claim that this actually pushed up the price of new homes and existing leaseholders to lament that nothing changed for them.
Round 2: 2023
Following Grenfell and other scandals, the Government swore to provide “a clear framework for safety and accountability, ensuring residents are safe and feel safe in their homes” but due to drafting errors and other mistakes, flat owners found themselves burdened with high costs of cladding, unable to sell their homes and unable to enfranchise because they would otherwise take on all liabilities for inherent building defects.
Many are now stuck in a nightmare between homes that they can only sell at a loss and buildings they cannot afford to repair.
Round 3: May 2024
With the introduction of the Leasehold and Freehold Reform Act 2024, the Government promised to “reduce the premiums that leaseholders have to pay to extend their lease or purchase their freehold”.
As it transpired, the Act was rushed through parliament at the last minute in a wash-up, will require piecemeal secondary legislation to come into effect, and the laws that will change the premium that leaseholders pay will either result in premiums being more expensive for leaseholders or in premiums being less expensive for leaseholders leading to challenges from freeholders, leaseholders who enfranchised, investors and anyone who supports the European Convention on Human Rights.
When a law confiscates property value from one person and donates it to another, the result is an infringement upon fundamental human rights, which are protected under the European Convention on Human Rights (ECHR). There looks to be years of legal challenges ahead whatever the Government does.
Round 4: July 2024
In July 2024, the Government signalled it’s intention in the King’s Speech 2024 and other statements to “bring the feudal leasehold system to an end”, to convert home ownership from Leasehold to Commonhold, to make the enfranchisement process cheaper and easier and more available for leaseholders, to make the premium that leaseholders pay to freeholders cheaper than the fair market price and to make it easier for leaseholders to manage their building.
Hold Your Horses!
The Government’s intentions to change the residential market are clear so why are people across the spectrum not convinced?
Jenny, 35, a flat owner for 3 years in a newly-built block of flats near Liverpool, is fed up with her managing agent and high charges. She says:
“Our freeholder and their managing agent have been ripping us off for years, and as an accountant by trade, I proved this to them but got nowhere. We want to take over the management but want to get rid of the freeholder. The Right to Manage gives us all the liabilities and red-tape without full control of our freehold and we would still need to pay ground rent. TheGovernment has promised to abolish Ground rent but I’m worried that they will take years to confiscate the Ground rent from our freeholder and to deal with his legal challenges, and we really can’t afford to wait that long.”
Daniel, 26, a first time buyer says:
“My partner and I want to buy a place of our own, near her work outside London and not too far from our families. We can’t afford a house at this time of our lives, and are happy with a flat, but every time we try to buy a leasehold flat, our mortgage company rejects our application because the flat we want does not have a share of freehold unlike others in the same building. And to buy into a share of freehold requires us to compensate the other flat owners who are the freeholders which we cannot afford. The Government has promised to make Commonhold widespread which sounds great but the mortgage companies we’ve spoken to say they won’t have a product ready to lend for years.”
Susan, 62, a flat owner for 25 years in North London, led a highly successful enfranchisement claim for her building in North London against a notorious Freeholder. She says:
“Like hundreds of thousands of other leaseholders across the country, we purchased our freehold via collective enfranchisement . I personally invested my life’s savings to buy short leases as required by law. I don’t regret a thing. However, if the Government now wipes out the marriage-value of my investment after making me pay, my husband and I will be devastated. That is really unfair but they have ruled out any compensation.”
Bill, 48, purchased a three bedroom flat on the South Coast of England as an investment for his son during his course at university. He said:
“I could afford it from my savings because it had a short lease and was very cheap and I expected to extend my lease at some point in the future at a high cost. I must admit that I was over the moon when the Government announced that they are removing marriage-value – my flat will triple in price but now I’m sceptical. I can’t understand how this would work if the government doesn’t compensate the Landlord and also I’ve been advised that if they fix certain rates at market value, the value of my flat will actually go down. I’m all for levelling the playing field but price-fixing doesn’t work.”
Amy, 50, purchased a flat in Manchester but let the lease lapse to under 80 years after she moved abroad. Amy says:
“I’ve been renting out my flat since I and my family moved to the US around 20 years ago and honestly didn’t think about the lease going under 80 years. When my mortgage came up for renewal I was advised to extend my lease as I had what they call a Wasting Asset. I was about to do so when I found out that the Government has promised to remove marriage value and make the freeholder pay their own fees for granting me an extension. However, the longer I wait for the law to change, the more expensive my lease extension will be, and I’m worried that the freeholder will now hold out for a higher price to cover his fees.”
Hold Your Breath?
The Government has raised high hopes about short term and generational changes to the leasehold system. Whilst many of these promises will allow more leaseholders to exercise their rights and make it easier and cheaper for most leaseholders to exercise those rights, each provision comes at a hidden cost.
So, should you hold your breath for the new laws?
Our answer is simple. If you know what laws will come into effect and when, are sure you know the the deferment and other rates that the government will set, the capping level if any of the ground rents, you are confident that Courts including the European Court of Human Rights will not find any of the valuation laws ‘confiscatory’ and you are overjoyed by your management and service charges and if you have no life plans in the next 5 years… Then sure, hold your breath.
Otherwise, don’t blink, and start to exercise your right to lease extensions and freehold now.
