The Housing Secretary Matthew Pennycook has made a ministerial statement on the future of leasehold reform which provides some welcome clarity about the government’s intentions, timescales and next steps.
The statement published on 21 November reiterated the government’s manifesto commitment to bring the leasehold system to an end during the course of this parliament, whilst recognising the “significant complexity of the task and the importance of taking the necessary time to ensure that reforms are watertight.”
Clearly the government has recognised that the scale of the leasehold reform task is more complex than first envisaged and that some serious flaws have been identified with the hastily passed Leasehold and Freehold Reform Act that will need to be addressed before it is fit for purpose.
As Mr Pennycook’s statement explains, “the Act has rendered the process of holistic and coherent leasehold and commonhold reform more challenging.” Among the challenges, the statement points out that there are issues in relation to the proposed amendments to the threshold for the Right to Manage (RTM), and that (as matters stand) a 990-year lease extension would not be available for shared ownership properties, if their landlords will not have sufficiently long leases to grant 990-year extensions.
There are also known defects in the valuation mechanism that will require primary legislation to fix. This is likely to cause significant delay in the implementation of the valuation reforms.
Nevertheless, the statement tells us that it is still the government’s intention to act “as quickly as possible” to provide homeowners with greater rights, powers and protections over their homes by implementing the various provisions of the 2024 Act.
Labour’s intentions are to go much further with reform than the proposals tabled by the previous government, with the ultimate goal of ending leasehold for the residential sector and replacing it with commonhold as the default tenure. The 2024 Act only dealt with a few of the key recommendations made by the Law Commission, in it is original report and recommendations. Labour has said it intends to implement more of these.
In addition to this, it plans to bring about reforms to ground rents and also introduce the reforms to service charges and legal costs set out in the 2024 Act. Separately, they also plan to tackle the abolition of forfeiture for residential leases. This new bill is therefore likely to be quite a lengthy piece of legislation.
The ministerial statement seeks to shift some of the blame for the issues with the 2024 Act onto the previous administration, although it is worth bearing in mind that the 2024 Act was passed as part of a ‘cross party’ deal.
The prospect of Labour’s own piece of consolidating legislation in the draft ‘Leasehold and Commonhold Reform Bill’ is very clearly going to require a good deal of work.
A panoply of fresh consultations are planned, seeking views on service charges and legal costs, the valuation rates that will be used to calculate the cost of enfranchisement premiums, and a consultation on banning new leasehold flats, all of which should kick off during 2025.
The statement also confirmed that a new draft Leasehold and Commonhold Reform Bill will be brought forward during this parliamentary session with the intention of reinvigorating commonhold through the introduction of a comprehensive new legal framework. The government has also promised to publish a White Paper on its proposed reforms to commonhold early next year.
In addition, the statement sets out the intention to take action to protect leaseholders from abuse and poor service at the hands of unscrupulous managing agents by strengthening regulation, including the introduction of mandatory professional qualifications. Many of those reading this will have seen the BBC investigation broadcast on 22nd November in a well- timed piece highlighting some extremely poor management practice.
A number of the 2024 Act’s provisions came into force on 24 July and further building safety measures were implemented on 31 October. However, none of the substantive enfranchisement provisions are currently in force.
Commencing the remaining provisions in the Act will require an extensive programme of detailed secondary legislation which will take time.
However, there will be some further legislative changes which the government intends to introduce imminently. As we have predicted in previous blogs, the government will move swiftly to commence the Act’s provision to remove the two-year rule in relation to lease extensions (and freehold house claims) in January 2025.
This will mean that leaseholders will have the right to an extended lease immediately, rather than having to wait two years (as is currently the case).
It also plans to enact changes to the manage provisions. This will allow qualifying leaseholders in mixed-use buildings to access the right to manage if up to 50% is used for non-residential purposes rather than 25% as is the case at the moment.
All this points to a year or more of intensive consultations which may not be music to leaseholders’ ears, but does signal the government’s intentions to gather as much information as possible to ensure that its forthcoming Leasehold and Commonhold Reform Bill is fit for purpose, will adequately address key issues such as valuation reform, tenure and ground rents, and will ultimately enable it to achieve its aim of replacing leasehold with commonhold by 2029.
Experts in leasehold law have consistently expressed concerns that leasehold reform cannot be rushed due to its complexity, so it is encouraging that the government has clearly recognised the challenges and acknowledged the need for more consideration and consultation before pressing ahead with a new round of draft legislation.
The announcement is a positive step forward and provides some clarity on the government’s intentions. The clarity on some of the proposed timescales will be welcomed by those stakeholders who have been adversely affected by uncertainty for the past year.
However, for those wondering when, if and how the 2024 Act’s valuation changes will come into effect it is clear that these are at least a further year or more away, given that the promise here is for there to be a consultation on rates in the Summer next year, and the need to wait for primary legislation to make these functional. This also says nothing of the possible interaction with the Human Rights Act claims which are currently in train and heading to a preliminary hearing in January. If these progress this will be a further complicating and delaying factor.
26.11.2024
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The above is accurate as at 28 November 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.
