Leasehold & Freehold Reform Bill Update

The hotly debated Leasehold & Freehold Reform Bill is making quick progress through Parliament having now had it’s 1st and 2nd readings. The Bill is currently awaiting it’s 3rd and final reading at the House of Lords before final amendments and then Royal Ascent into Law. 

This complex piece of legislation aims to crack down on unfair leasehold practices. 

According to Gov.uk:

· There are an estimated 4.98 million leasehold dwellings in England. 

· This equates to 20% of the English housing stock. 

· Of these, 1.85 million are privately owned and let in the private rented sector.

· 70% of the leasehold dwellings in England are flats and 30% are houses.

What does the Leasehold & Freehold Reform Bill plan to change?

Increasing the standard lease to 990 years. Currently you have to have owned the property for 2 years before you are able to extend a lease. Whilst the Bill will remove the 2 year restriction, there should be little requirement for it if the standard lease is going to be 990 years. 

Removing the marriage value towards the end of the lease. If a lease has less than 80 years remaining on it, it can cost almost double the amount to extend it vs a lease of more than 80 years. 

Quicker and easier to buy or sell. On average it takes 50% longer to sell a leasehold property than a freehold because there are usually more parties involved. 

Transparency over service charges and administration fees. Some managing agents have been guilty of charging ridiculously large fees. 

What are the main things the Bill seeks to change?

Ground rents are paid by leaseholders to freeholders every year. The Bill plans to cap ground rents to £250 (£1,000 inside London).

New leasehold houses will be banned. There will be some exemptions such as shared ownership and National Trust properties.

Build 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 works.

What are the potential implications of the Bill?

This all really depends on if and when it gets implemented. More amendments to the Bill are highly likely and some elements may never be implemented.

Properties on a short lease are potentially going to grow in value by 10% if the legislation is passed. With less onerous terms and cheaper/easier lease extensions, demand for leasehold properties is likely to increase.

The uncertainties surrounding the content and timings of the Bill are already causing some slow down in the leasehold property market and buyers and sellers wait to see what will happen. As such, some people are considering holding off on lease extensions. 

The elephant in the room remains the huge pension funds invested in ground rents. Purportedly worth £40 billion! That’s a big hole for the Government to fill.

Current advice is that you should extend your lease now if you want to sell or refinance. Who knows what the future holds?

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