Leasehold reform 2024: What you need to know
Major leasehold reforms are currently being decided by Parliament. Here we explain the latest – including recent rumours about ground rent proposals, whether they go far enough, what will change and when and what that all means for you.
Leasehold reform: What has been announced
The Leasehold and Freehold Reform Bill was announced in The Kings Speech in 2023 and introduced to the House of Commons in the following November to:
- Make it cheaper and easier to extend your lease or buy the freehold for existing leaseholders in houses and flats.
- Increase the standard lease extension term from 90 years to 990 years for houses and flats, with ground rent reduced to £0.
- Remove the requirement for new leaseholders to have owned their house or flat for two years before they can benefit from these changes.
- Make buying or selling a leasehold property quicker and easier by setting a maximum time and fee for the provision of information to a leaseholder by the freeholder.
- Require transparency over leaseholders’ service charges.
- Replace buildings insurance commissions for managing agents, landlords and freeholders with transparent admin fees.
- Extend access to “redress” schemes for leaseholders to challenge poor practice.
- Scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.
- Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders but not the Right to Manage.
- 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 work
- Allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (an increase from 25%).
- Although not in the draft bill, the government is still committed to banning new leasehold houses in England and Wales and will be amending the bill. Disappointly the ban on leasehold will not extend to new flats.
The Bill is currently with the House of Lords at Committee stage.
What about the cap on ground rents?
Alongside the Bill, the government is consulting on the capping of ground rent for lease extensions. The consultation acknowledged that leaseholders shouldn’t have to pay for unnecessary services and that charges should be reasonable and no longer cause an issue when people come to sell.
The government consulted on 5 proposals to decide the best way forward. These are:
- setting ground rents at a peppercorn – which we have supported in our response to the consultation.
- putting in place a maximum financial value which ground rents could never exceed
- capping ground rents at a percentage of the property value
- limiting ground rent in existing leases to the original amount when the lease was granted
- freezing ground rent at current levels
Ground rent: March 2024 update
According to a report in The Times in March 2024, proposals to reduce all ground rents to a peppercorn rate may be abandoned after Michael Gove and officials at the Department for Levelling Up, Housing and Communities ‘met fierce resistance from the Treasury’. It’s claimed this followed an intensive lobbying campaign by pension funds, some of which have invested billions in buying up freeholds for blocks of flats. It was also reported that government lawyers warned Mr Gove that making retrospective changes to property rights could leave ministers open to legal challenge.
The consultation ended on 17 January and we await the government’s formal response.
Will leasehold houses be banned?
Yes. The sale of new leasehold houses will be banned in the Bill so every new house in Engand and Wales will be freehold (other than in exceptional circumstances). This has been tabled as an amendment to the Bill. We’ve been campaigning for this since 2017 and asked for this in our Homes Held Hostage report. Since the government announced its intention to end leasehold houses later that year, the sale of new leasehold homes have dwindled. Even so, we welcome formalising it in law as we still see leasehold houses for sale, particularly in the retirement housing sector.
What about abolishing leasehold for all new flats?
Sadly, the government has not gone as far as to abolish new leaseholds on flats. Despite referring to leasehold as an outdated and feudal system that needs to go, the government appears content for new flats to be bought and sold as leasehold.
If Ministers were serious about doing away with leasehold then they need to ban leaseholds on all new flats as well as all new houses. The only argument for retaining leaseholds on flats is so that management agencies and freeholders can exploit homeowners to line their pockets. Until that is reformed, homeowners continue to be held hostage in their own homes. This is a huge missed opportunity.
Our Chief Executive made the point that this was a once in a 20 year opportunity to end the toxic leasehold tenure while giving evidence to the Leasehold and Freehold Reform Bill Committee debate on 18th January. She suggested if commonhold is not ready yet, the Bill should immediately require all new flats to be sold as share of freehold to pave the way for commonhold.
What else should the Bill include?
In giving evidence to the Committee, the HomeOwners Alliance also called for:
- a peppercorn cap on ground rent for all existing leaseholders
- for all new build flats to be sold as share of freehold or commonhold – with no exemptions for shared ownership or retirement housing
- for homeowners who currently pay estate charges to get ALL the same protections as leaseholders – especially the Right to Manage
- that all future new build estates to be adopted by local authorites. You can see a sample of the fleecehold issues faced by homeowners on unadopted estates in the comments on our guide to Problems with Estate Management Fees
- that retirement flat exit fees charged by retirement developers are examined
When will leasehold reform happen?
You can keep track of progress of the Bill through Parliament on the Parliament website. We hope the Bill will gain Royal Assent this year before a General Election, after which time there will be a timetable for implementation of any changes that do make it through onto the statute books.
It’s also worth noting again that despite these plans for reform, there is no guarantee that all these reforms will make it through into the final Bill, that the Bill will get Royal Assent or that it will be passed before the next General Election. There is also no guarantee that any future government will commit to these reforms as set out here. So there’s a very strong case for continued campaigning.
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Should I extend my lease now or wait?
For many leaseholders looking to extend their lease, you may be wondering what specifically this all means for you. If you’re thinking you’ll simply wait for these leasehold reforms to come into effect, bear in mind that there is no guarantee the changes will happen and, if they do, when that will be exactly.
There are circumstances in which you may want to get on with your lease extension. For example, if you’re thinking of remortgaging or selling your leasehold property, buyers won’t be able to get a mortgage if the lease term is too low.
We spoke to Linz Darlington of lease extension specialists Homehold who says they are finding while large investors sometimes wait, homeowners and small landlords are typically deciding to press ahead with their lease extensions because they don’t want to put their lives on hold. And that it has been a good call for them so far. He says that over the last five years, Upper Tribunal decisions have made it more expensive for people to extend and so anyone who has waited has been disappointed so far.
What you might choose to do will depend on factors like your lease length and your circumstances. For example:
- Lease length: 80 to 82 years – It’s almost certainly advisable to extend. It’s unlikely that the reforms will be through before your lease drops below the “80-year mark” at which marriage value kicks in making it more expensive.
- Lease is above 82 years – It’s up to you: it is likely be made cheaper by the reforms, but it might also made more expensive. If you’re comfortably over the threshold, say 100 years, you could wait to see what reforms come.
- Ground rent is high: Consider waiting because it may be made cheaper for you in the future.
- Lease below 80 years: Again, you may wish to consider waiting as it might be made cheaper for you in the future.
However, everyone’s personal circumstances are different. So getting expert advice is recommended.
What else will the Bill include?
The Leasehold and Freehold Reform Bill will also cover the following necessary changes:
Marriage value
We have been campaigning for marriage value to be abolished. While no mention was made in the King’s Speech about this, in an All Party Parliamentary Group afterwards, when asked by Paula Higgins, Chief Executive of the HomeOwners Alliance whether marriage value would be abolished, Housing Minister Rachel Maclean confirmed: “Marriage value will be abolished and we will say more about how the cost will work when we come forward with the Bill.”
Marriage value is particularly an issue for leaseholders where their lease is less than 80 years. We estimate there are 370,000 leaseholders in this position. The cost of extending the lease then gets much more expensive due to marriage value forming part of the calculation. Marriage Value equates to 50% of the increase in the market value of the property arising from the extension of the lease and is paid to the freeholder. The government had suggested in the past that they want to do away with marriage value in the next stage of reform, but it’s going to be a tricky issue as freeholders could rightly demand compensation.
For some leaseholders, these changes could save thousands, to tens of thousands of pounds, according to government.
Lease extension calculator
We’ve also been calling for a simpler way to value the cost of extending a lease or buying a freehold. The Government has previously promised the introduction of a statutory calculation to determine the value of the premium a leaseholder pays to a freeholder. And it looks like this Bill will include one.
By formally setting out the cost of extending a lease, the Government would be protecting leaseholders from costly and time-consuming negotiations. However until this comes into force we are stuck with the current system, where extending your lease can be expensive and the amount you pay can be complicated. It depends on factors like the value of the property, the number of years left on the lease and the annual ground rent charge. The amount you pay is open to negotiation and at the moment it’s critical you get sound valuation advice.
Short-lease property prices could rise 9.9%
If government proposals on leasehold reform are passed in the Leasehold Bill, they could increase the value of homes with short leases by 9.9% on average, according to analysis published by property consultancy Knight Frank and Bayes Business School.
Assuming leaseholders extend their leases, this would add £24,896 to the average price of a short-lease property, transferring £10.9 billion from freeholders to leaseholders, the report found.
Some critics argue this has the potential to make housing even more unaffordable. However, an increase in property values will benefit homeowners who currently own properties with short leases.
Are you a leaseholder? How do these new changes impact you? Tell us in the comments below
Frequently Asked Question
I’m currently buying a leasehold property, what should I do?
If you are in the process of buying a new build, you should check that your lease is 990 years and that the ground rent should be set to zero. As of June 2022, developers cannot sell newly built flats with ground rent.
If you are buying an existing leasehold property, you may be able to negotiate the price as other buyers have been put off buying leasehold. If the property has a long lease, you will get the advantage of a cheaper leasehold extension if the rules come into force.
I’m in the process of extending my lease. Can I put it on hold until the new changes come in?
If you have begun the formal (or statutory) route to extend your lease, then the answer is no. You cannot put a temporary hold on the process. You have a simple choice. Carry on or withdraw.
If you are using the informal or negotiated method, it may be possible to agree a temporary delay with your freeholder. But, this is at their discretion, and they can change their mind at any time. If you are negotiating an informal lease extension, you should argue that the marriage value should be taken out of the future calculations now or else wait to see if the new rules to come in.
Is it still worth buying the freehold?
The planned reforms certainly make owning a leasehold property more attractive. However, there are still benefits of owning the freehold. For example, if you’re a leaseholder you’ll still need to pay your freeholder’s costs for the maintenance of the building. And you’ll also need to seek permission from the freeholder if you want to undertake any major works on your home.
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