Category Archives: Leasehold reform

Leasehold reform news

The Leasehold and Freehold Reform Act 2024 – Some initial thoughts…

Some initial thoughts from an enfranchisement perspective… Leasehold history is made on the 24th May 2024 as the Leasehold and Freehold Reform Bill is passed into law. The next question is ‘when does it come into force?’ – For some thoughts on that and the new law generally, read on below…

The speaker reads out the list of new Acts passed at the end of this session of parliament ending with the Leasehold and Freehold Reform Act 2024. A link to the Parliament TV coverage of that moment appears below:

https://parliamentlive.tv/event/index/bd4e0af0-072c-4522-aef6-5895859b4780?in=20:49:01

Leasehold Reform News – and an election to boot

Mr Sunak’s sudden move to call a general election on Wednesday 22^nd May threw parliament into a final splurge of business and in the ‘wash up’ resulting from this we have the birth of the Leasehold and Freehold Reform Act 2024 (‘the 2024 Act’).

The 2024 Act made it onto the statute books on 24^th May 2024, just two days after the election announcement and as the final session of this parliament was brought to a close as the very last Bill passed in this parliamentary session.

So, it is an Act of Parliament and no longer a Bill. So, it really is time to say ‘welcome’ to a whole new world of leasehold reform…

Lots of people have been asking questions and I thought it might be helpful to summarise some points below.

What is in the Act?

Essentially all the much talked about changes are there. The 990-year lease extension, abolition of the two-year rule and the change in qualification criteria for mixed use buildings. In addition, we will see the end of marriage value for leases under 80 years and the end of the ability for the landlord to recover their costs from the tenant under a standard statutory claim. There are also the changes that relate to property management.

The valuation changes will mean that most valuations will to be on the ‘standard’ basis – effectively a term and reversion calculation with a presumed 0.1% cap on the ground rent when valuing the freeholder’s interest.

In addition, there is a ban on the creation of new leasehold houses.

What is not in the Act?

The much-discussed cap on ground rents, whether that be at £250, a peppercorn (nil) or otherwise. The thinking had been that this might make it into the Bill, if the outcome of the consultation were published prior to the Parliamentary stages being completed and perhaps be the subject of a late-stage amendment. The truncated process meant that this could not happen and so this will have to wait for further legislation under a future government.

Is it law?

Yes, it most certainly is. The 2024 Act received the Royal Assent right at the end of the final session of this Parliament and appeared right at the very end of the list of Acts approved in the ‘wash up’ at the end of this session of parliament.

Is it in Force?

No, not yet. The operative provisions do not come into force until commencement. The version of the Bill that has been passed into law is the version subject to the 67 Government amendments made in the Lords which were passed in the expedited legislative process on Friday 24^th May 2024. These amendments do not make significant changes to the general position under the Act as has been discussed so far but do tidy up some anomalies.

When does it come into force?

The commencement provisions are set out in section 123 of the Act. These state that the provisions relating to rentcharges, the shifting of costs in tribunal cases on service charges, and the BSA amendments will come into force two months after the Act is passed into law.

That being the case, by my reckoning these provisions will come into force on 24th July 2024, subject to any other amendments to the contrary by the Secretary of State.

As to the other ‘meatier’ parts of the Act, as far as leasehold reform is concerned, these are subject to commencement under Statutory Instruments (‘SI’s) – See section 123(3).

These SIs need to be made by the Secretary of State and we also know that in order to be effective the valuation changes will need various matters such as the relevant rates to be prescribed. These will need to be in place before these changes can be enacted.

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This means that we will very much have to ‘wait and see’ as to when all this will come into effect.

Perhaps the most instructive thing that we can refer to on this question at the moment is the letter from Baroness Scott to Lord Kennedy in a written answer from 15^th April 2024.

See:

This was an answer given as a ‘will write’ letter, which is a written answer given when a question is raised in either house, and the Minister says that she/he ‘will write’ to the member concerned with an answer.

In this Baroness Scott says that the Department is working hard to take these reforms through parliament and that the anticipated timescale will be 2025-2026 because of the need to draft the secondary legislation needed to bring these into effect.

Anyone expecting an immediate change on the valuation side (or indeed elsewhere) may well have to wait a little while therefore, given that we have the small matter of an election and a summer recess in the way.

So where does that leave us now?

Well, we know what the new Act provides. What we don’t know is the detail of how for instance some of the critical rates such as the deferment rate or capitalisation rates will be arrived at. These are to be prescribed by the Secretary of State and reviewed every 10 years (according to Para 26 of Schedule 4 and 38 of Schedule 5). This will be critical to determining value in the ‘new world.’

We will need to see the secondary legislation to see how these will be determined and, assuming the same intent as per the 15^th April letter, taken at face value indicates a ‘determination to facilitate a smooth transition.’ That could mean that some of this could take some time.

And Finally

As some others have already commented, there are various parts of legislation that sometimes do not get brought into force, a good example being the provisions relating to the creation of ‘Right to Enfranchise’ companies that were in the 2002 Act. It is also possible that some of the provisions in the 2024 Act may not be brought into force, although a future government is unlikely to leave these ‘on the shelf,’ particularly given the statements that Labour have made about leasehold reform.

A week can be a very long time in politics and so I think we look to the coming weeks ahead to see what further guidance (if any) is issued by DLUHC about commencement. Given that we are now in the ‘restricted period’ (formerly called ‘purdah’) prior to an election (effective from 25^th May 2024) there will be limitations on what can be done, and it may be that nothing further can be done on this until after the election.

Mark Chick

26^th May 2024

Leasehold Reform News – Welcome to the new world

Well who would have thought this time last week that we would know when the election was? A sudden move by Mr Sunak throws parliament into a final splurge of business and in the ‘wash up’ that we have all learnt a lot more about in the last 24/48 hours we have the birth of the Leasehold and Freehold Reform Act 2024. No longer a bill.. so it really is ‘welcome to the new world of leasehold reform.’

So the next question has to be ‘when does all this come into force?’ – Well the Act’s commencement provisions state that the provisions relating to rentcharges, the costs shifting in tribunal cases on service charge and the BSA amendments come into force two months after the Act is passed into law. So these provisions would seem to be in force as of 24th July 2024. As to the other ‘meatier’ parts of the Act, these are subject to commencement under statutory instruments (‘SI’) – See section 123(3). These SIs need to be made by the Secretary of State and we also know that in order to be effective the valuation changes will need various matters such as the relevant rates to be prescribed. These will need to be in place before the valuation changes can be enacted.

The Bill had only got to the report stage form the Select Committee in the Lords and we will need to pore over the finer detail of the version that has been enacted. However all in all, perhaps not that bad for a Friday afternoon’s work before the bank holiday weekend?

Let’s hope that this model does not suffer from any production line issues that have been known to plague other products made at a similar time.. we await the detail of commencement with interest.

Mark Chick

24th May 2024

Is a cap on ground rents at £250 p.a. on the cards? – and will ground rents be phased out over the next 20 years or so?

So, there we have it – The Sunday Times indicating that the outcome of the ground rent consultation will be a £250 cap on all existing ground rents and a planned ‘phasing out’ of current ground rents.

Certainly, previous indications from the Sunday Times have been accurate in the past – and so we should probably consider this to be more than likely to be an ‘accurate’ picture of what government has planned.

The article says that ‘the government will now seek to phase out ground rents for current leaseholds over a period spanning at least 20 years…’ and that ‘during this period a £250 cap on ground rents will also be implemented.’

Taking these two points in turn – phasing out – does this mean that there will be a ‘sunset clause’ for all ground rents – meaning that all current ground rents will fall to zero in say 20 years’ time? And secondly during that period – i.e. from implementation, that all ground rents will be capped at £250.

If that is the case does the £250 cap apply everywhere? Or will there be a differential for say, Central London – mirroring the Housing Act 1988 provisions?

What does this mean in terms of ‘cheaper and easier’? – I have to say that the article is slightly misleading when it says: ‘But it would make extending the lease term or buying the freehold more expensive for the leaseholder, because they would have to compensate the freeholder for income lost.’

Clearly not implementing an immediate shift down to zero ground rent would make it more expensive to extend or buy the freehold, but we have to bear in mind that a complete ban is not the current position. Therefore even a shift down to £250 would provide a saving for all those whose rents are over that amount and in addition, the prospect of a sunset date (if this is correct) would also reduce the amount payable as the ground rent stream would only last for the next 20 years (or whatever the ‘phase out’ period might be).

This also ignores the fact that in the draft Leasehold and Freehold Reform Bill that the ground rent is assumed not to exceed 0.1% of the capital value of the property. Another factor which on its own would make it ‘cheaper’ to extend or buy the freehold.

Clearly some further clarification is needed, and we will hear this week, just as the Lords are debating the Bill and we can therefore no doubt expect an amendment dealing with these points. We look forward to the formal outcome of the Ground Rent Consultation and the rationale behind this thinking.

It will be interesting to see how this sits in comparison with the Human Rights points that have been discussed in relation to this matter. These considerations are after all as far as I can see, what has prevented a complete ban on existing ground rents being contemplated – because of the potential need to pay compensation in such a case and, I can only assume therefore that the view that is being taken is that the introduction of a fixed cap is more of a ‘control of use’ than a ‘deprivation’ under the ECHR and therefore not a breach of the convention rights of the freeholder. Presumably, any phasing out over time is intended to be seen in the same way.

I await the formal outcome of the DLUHC Consultation and the Lords debate on the Bill tomorrow with interest.

Mark Chick

21.4.2024

Is an outright ban on current ground rents now out of the question ?

Many people will have seen the rumour/ announcement in yesterday‘s Sunday Times

The Times / Sunday Times do have a good record of being an unofficial / official source of these things – after all that is where details of the Leasehold and Freehold Reform BIll first appeared in November of last year.

If this is right then it may well be that the recommended outcome of the DLUHC consultation on ground rent may not be the banning of ground rent for all existing leases.

Stepping back from this, is this actually a surprise ? After all a total ban was only one of the options for reform that the consultation sought views on.

To many commentators this won’t be that much of a surprise given the noted potential issues with the possible need to pay compensation – highlighted by various human rights experts and also the question of interference in existing contracts.

Outside of some of the more political comments, there has been a ban on ground rent for all new leases following the Leasehold Reform (Ground Rent) Act 2022.

What the article does not make clear is which of the other options for reform are still on the table – don’t forget the consultation mentioned a 0.1 % (or higher cap) a freeze and also a cap at £250 for all current ground rent as an option. Mr Gove’s team are still lobbying for the £250 cap apparently.

This would be a significant step forward for all leaseholders – what I am not clear about is why one of the options for reform as not a more surgical strike on ‘bad’ ground rents (the high doubling rents, or the ones like the one the article mentions) – and these alone as a first step.

There are other possible options too – like a phased in ban or reduction – giving the market time to adjust. These were not mentioned in the Consultation but were among the suggestions made by respondents to it.

What the official outcome of the Consultation will be – we do not yet know – but it does seem that an outright ban may not be on the cards.

The question then is what recommendation(s) will the consultation make? Betting money might be on a cap at a fraction of capital value – especially given that the draft bill uses a 0.1% cap in its valuation model. However, we will have to wait and see …

Mark Chick

25th March 2024