The Leasehold and Freehold Reform Bill passed its Second Reading in the House of Commons on 11 December 2023, receiving almost unanimous cross-party support. The Bill then moved to Committee stage where it is being examined by the Public Bill Committee, which will scrutinise the Bill line-by-line.
The Bill is the second part of a legislative package to reform leasehold law. It follows on from the Leasehold Reform (Ground Rent) Act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales. Key proposals of the Bill include reforms to valuation (including the removal of marriage value), increasing standard lease extension terms to 990 years, and brining in a new right to ‘buy out’ the ground rent in an existing lease where the lease is over 250 years. There are also numerous other changes that have been the subject of much comment in the field of management – including banning charging insurance commissions and increased transparency in service charges.
The Public Bill Committee debated the draft Bill on Thursday 18 January 2024. In a wide-ranging debate, the Committee heard evidence from expert witnesses, including representatives of the HomeOwners Alliance, Shared Ownership Resources, the Federation of Private Residents’ Associations (FPRA), the Competition and Markets Authority, Policy Exchange, the Law Society, Tanfield Chambers and the Residential Freehold Association (RFA).
Sue Phillips, Founder of Shared Ownership Resources, called for the Bill to be amended to give shared owners the same rights as other leaseholders: “The problem for shared owners is that if they fall behind with payments, they are liable to possession with no reimbursement of the equity they have invested in their property…. Shared owners should have the same right as other leaseholders and they should not be liable to lose their investment in their home due to a relatively small debt.”
Paula Higgins, CEO of the HomeOwners Alliance, called for greater simplicity when calculating lease extensions and ground rents: “What we want is that when people are doing lease extensions, there is a calculator, so they do not need to get valuers and have lots of negotiation; there is a lot of cost in that.”
Many of the witnesses supported proposed legislation to improve transparency over service charges. Bob Smytherman, Chair of the FPRA, advised the Committee that: “All the disputes that we see around service charges are where managing agents hide things because there is no statutory regulator, or where landlords kick accounts into the long grass because they don’t have to produce them. Having a prescribed way to be completely transparent about service charges is really important.”
Witnesses also supported calls for managing agents to be regulated. Paul Broadhead, the head of mortgage policy at the Building Societies Association, said: “We believe that managing agents should be regulated… at the very minimum, short of regulation, they should be forced to be a member of an alternative dispute resolution scheme.”
Barrister Philip Rainey KC, Head of Tanfield Chambers and Philp Freedman CBE KC Speaking on behalf of the Law Society provided their views on the Bill’s potential to impact property rights. Philip Rainey reported to members: “Clearly, from a legal perspective the Bill interferes in an extremely significant way with property rights”. Meanwhile Philip Freedman argued that: “Where you are transferring value, there is always a loser, and there are lots of investors who appear to have bought in good faith and were not expecting retrospective legislation… It is up to Parliament to decide whether the social benefit is sufficient to outweigh the concern about pension funds, and so on, that have invested in ground rents.”
Jack Spearman, chair of leasehold reform at the Residential Freehold Association, raised concerns that the Government’s proposals to cap ground rent will lead to significant cost to the UK taxpayer: “The Government say that no compensation will be paid, but unfortunately, they also know that that is probably not going to be compliant with the European convention on human rights. Compensation is going to have to be paid, and it is either paid by the taxpayer or the leaseholder.”
The Public Bill Committee is expected to report back to the House of Commons by Thursday 1 February 2024. Amendments will then be considered before the Bill returns to the Commons for its Third Reading. Reports suggest the Government is aiming to put the Bill into law by the Summer, ahead of the General Election, which is likely to fall in the second half of 2024.
What is clear is that there are a wide range of views and that the Bill’s proposed changes are wide ranging and deep seated. Freeholders are concerned about the extent of the valuation reforms. Whilst the Bill is very good news for leaseholders – does it in fact go too far? For instance, if all of the value is removed from managing and owning freeholds will there ultimately be a crisis of management in some quarters? It is clear that significant change is coming, but the full detail is still unclear. For instance, there are several amendment papers tabled to the Bill for discussion by the Committee (for further details see the parliament website https://bills.parliament.uk/bills/3523/publications and a number promised features (such as banning the creation of leasehold houses) are yet to be included. These presumably will have to come at later stage when the Bill goes to the Lords.
The Select Committee continues its deliberations, and we will have its report after 1st February 2024.
Contact our Landlord & Tenant Solicitors
The above is accurate as at 26 January 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.