20 Nov 23 by Jane Falkner
In his first King’s Speech on 7th November, King Charles commented on both the Leasehold & Freehold Reform Bill & the Renters (Reform) Bill.
The King’s Speech and the residential property market
Leasehold & Freehold Reform Bill
The King confirmed that the government intends to bring forward reforms to the leasehold system, declaring “My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackle the exploitation of millions of homeowners through punitive service charges.”
The briefing note released after the King’s Speech, stated ‘the [Freehold and Leasehold Reform] Bill will make the long-term and necessary changes to improve home ownership for millions of leaseholders in England and Wales, by making it cheaper and easier for more leaseholders to extend their lease, buy their freehold, and take over management of their building by:
- Increasing the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to £0.
- Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes (ie so that a lessee may apply for a lease extension, or to acquire the freehold, immediately after they purchase the property).
- Increasing the 25 per cent ‘non-residential’ limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices, from buying their freehold or taking over management of their buildings (ie by allowing leaseholders in buildings with up to 50 per cent non residential floorspace to buy their freehold or take over its management)
In terms of improving leaseholders’ consumer rights, the notes said that the bill will do this by:
- Making buying or selling a leasehold property quicker and easier by setting a maximum time and fee for the provision of information required to make a sale to a leaseholder by their freeholder
- Requiring transparency over leaseholders’ service charges
- Replacing buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees
- Extending access to “redress” schemes for leaseholders to challenge poor practice. We will require more freeholders to belong to a redress scheme so leaseholders can challenge them if needed.
- Scrapping the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.
- Granting freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders
- Building on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work
Further the note highlights that Leasehold Market will be reformed by banning the creation of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.
Finally the note states ‘we will also consult on capping existing ground rents’.
These reforms build on the success of the Leasehold Reform (Ground Rents) Act 2022, which put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales. However neither the King’s Speech, nor the briefing note explicitly mentioned marriage value. Marriage Value forms part of the premium for a lease extension / freehold acquisition when a lease has an unexpired term of less than 80 years, and as a result the cost of extending the lease gets much more expensive. Marriage Value is the difference between what the property is worth in its current state with a lease of less than 80 years, and what the value would be with the new lease; 50% is paid to the freeholder as part of the premium.
Renters (Reform) Bill
In his speech, the King also said “Renters will benefit from stronger security of tenure and better value, while landlords will benefit from reforms to provide certainty that they can regain their properties when needed”.
In the briefing notes, the government made clear that strengthening landlords’ rights would precede reforms for the benefit of renters –
‘As part of the Government’s long-term plan for housing, the Renters (Reform) Bill will support the 11 million private tenants and 2.3 million landlords in England by:
Delivering the Government’s manifesto commitment to abolish ‘no fault evictions’, increasing tenants’ security [although] we will not commence the abolition of section 21 until stronger possession grounds and a new court process is in place.
- Strengthening landlord grounds for possession, adding new mandatory grounds for possession
- Introducing stronger powers to evict anti-social tenants and reducing the delay between a landlord serving notice for anti-social behaviour and eviction
- Ending blanket bans on pets.
- Creating a digital Private Rented Property Portal to bring together key information for landlords, tenants, and councils.
- Supporting quicker, cheaper resolution when there are disputes – with a new Private Rented Sector Ombudsman
Alongside this, the note also stated ‘we intend to bring forward amendments at the earliest opportunity to:
- Make it illegal to have blanket bans on renting to tenants in receipt of benefits or with children
- Squeeze out criminal landlords who undercut the responsible majority
- Protect the student market
Alongside the Bill the Government is pursuing wider measures to support landlords by:
Speeding up the courts process so landlords can quickly regain possession of their property if a tenant refuses to move out.
- Scrapping proposals to require landlords to meet EPC C from 2025 in their private rented properties.
Please talk to our Development team for specialist advice in this area.