Since the Leasehold and Freehold Reform Bill (‘the Bill’) was announced in the King’s Speech on 7 November 2023 it has seen rapid progress through Parliament. Having already completed Committee stage in the House of Lords, the Bill will next move to Report stage, giving peers a further chance to closely scrutinise elements of the amended bill and make additional changes. A timetable for the Report stage is, at the time of writing, still to be announced, after which the draft Bill will receive its third reading in the Lords. Once that is completed, any final amendments will be reviewed before the Bill can be considered for Royal Assent.
The proposed Bill outlines a number of reforms to the leasehold system, which will extend rights to more categories of leaseholder, and introduce changes to reduce costs, including: increasing the standard statutory lease extension term from 90 years to 990 years; removing the requirement for leaseholders to own their house or flat for two years before they can extend their lease; increasing to 50% the non-residential threshold for mixed-use property; and banning the creation of new leasehold houses. Amendments that have been proposed by the Lords to date can be viewed here.
While the Bill’s progress through Parliament has been far from sluggish – compared, for instance, to the Renters Reform Bill it has pretty much travelled at light speed –there have been criticisms from some quarters that the Government’s early rhetoric in support of wide-ranging reforms has not been matched by the ambitions of the draft Bill.
In particular, the 2019 Conservative manifesto contained a commitment to reduce ground rent to a peppercorn rate. This has met with stiff resistance from certain circles (including within Government), following the realisation that a complete ban could lead to significant compensation claims having to be paid out to freeholders by the taxpayer.
Officially, the Government is still ‘analysing feedback’ and considering its response to the consultation earlier this year on applying a peppercorn (i.e. zero) rate to all existing ground rents.
That said, it looks increasingly likely that retrospectively removing all ground rents from existing leases will be a step too far. The Sunday Times was the first to report that the Treasury has rejected plans to move to peppercorn ground rents for all leases because of concerns about the potential costs if there were to be a Human Rights Act challenge. The current prediction is that if there are changes, these are likely to amount to a cap on current ground rents to set them at no more than £250, rather than being cut to zero. The recent news article also discussed phasing out these ground rents over 20 years, so that there would be a ‘sunset’ clause on them.
Also, during the course of last week, a group of around 30 Conservative MPs has reportedly written to the Chancellor, Jeremy Hunt, to express concern that the manifesto commitment to reduce ground rents to a peppercorn looks likely to be broken. The group has warned they may vote against the Government’s Bill unless ground rents are abolished for both future and existing leaseholds. The 2019 manifesto pledged the Government to “continue with our reforms to leasehold including implementing our ban on the sale of new leasehold homes, restricting ground rents to a peppercorn, and providing necessary mechanisms of redress for tenants.”
This somewhat ambiguous wording has led to interpretations that this is a commitment to remove ground rents from new leases only. If this were the case, then the commitment has already been met following the introduction of the Leasehold Reform (Ground Rent) Act 2022 which effectively banned ground rents for all new leases of flats and houses.
It will be interesting to see the outcome of the ground rent consultation and how the Government will chart its next course based on this. Will there be some sort of fudge or compromise?; Or, will any tackling of ground rents be put to future legislation rather than by way of an amendment to the current Bill?
What is clear is that provided that this Bill continues on its current course, that there will be real and lasting change in residential leasehold.
Mark Chick
7th May 2024
Contact our Landlord & Tenant team
If you have a query concerning leasehold property, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on +44(0)20 7631 4141.
The above is accurate as at 08 May 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.
