The King’s Speech on 7 November 2023 marked the introduction of the much-anticipated proposals to reform leasehold home ownership. Additionally, the King confirmed the carrying forward of the Renters (Reform) Bill, introduced in the last parliamentary session.
Leasehold and Freehold Reform Bill (the “LFR”)
The LFR aims to deliver on the Government’s commitments on leasehold reform. The Bill will apply to England and Wales.
Reform of the leasehold system has been on the agenda for some time (see our previous Law-Now’s on this subject The Government's initial response on proposed leasehold reform (cms-lawnow.com), Overhaul of the leasehold system new consultation (cms-lawnow.com), Ground rent legislation receives Royal Assent (cms-lawnow.com)). It has widely been anticipated that the King’s Speech would introduce legislation to take the reforms further, and while a draft LFR has not yet been circulated, the proposals are becoming clearer.
The LFR will aim to ‘improve home ownership for millions of leaseholders in England and Wales’ and includes:
- Making it “cheaper and easier” for residential leaseholders to extend their lease or buy their freehold;
- Increasing the standard lease extension entitlement to 990 years with ground rent reduced to zero;
- Extending rights to both new leasehold owners and to those leaseholders in mixed-use buildings - allowing residential leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (there is currently a 25% ‘non-residential’ limit);
- A long-awaited ban on the sale of new leasehold houses.
The Bill will also aim to improve leaseholders’ consumer rights by introducing controls on the provision of sales packs and improving service charge transparency and rights to challenge. Additionally, the LFR will build on the Building Safety legislation, to ensure that freeholders and developers are unable to escape their liabilities to fund building remediation work.
The Government will also consult on capping existing ground rents, a move avoided until now (presumably owing to the likelihood of a human rights challenge).
The Government was expected to announce the abolition of “marriage value”. There is no specific mention of this in the Speech, however, the worked examples in the briefing notes indicate that the premium payable by a leaseholder in any lease extension will be significantly reduced, which perhaps confirms that marriage value has had its day. There is also a subtle hint that leaseholders will no longer have to pay their freeholder’s costs.
The devil will no doubt be in the detail, with the hope being that the drafting of the LFR will be thorough and well thought out, balancing the interests of the relevant parties.
Renters (Reform) Bill
The Speech also reiterates the Government’s determination to progress the Renters (Reform) Bill, despite the ever-increasing volume of controversy that this Bill has created. The Bill will apply to England.
Our Law-Now article published after the first reading of the Bill (accessible here) sets out its key features, including the fundamental principle that section 21 notices, the ‘no fault’ eviction notice, should be abolished.
The briefing notes to the Speech, however, confirm that the abolition of section 21 notices will not take place until stronger possession grounds and a new court process are in place. The notes go on to confirm that a new digital system for possessions is being designed but give no indication when this process may be complete. For now, landlords will no doubt be relieved that the section 21 route will remain available to them for the near future.
The Speech states that landlord grounds for possession will be strengthened, adding new mandatory grounds for possession; for example, if landlords wish to sell property or for repeated serious rent arrears. If a tenant breaches their tenancy agreement or damages the property, landlords will be able to evict them in as little as two weeks.
While the delay to the abolition of section 21 notices is a headline change, it appears that the other proposals put forward in the Bill are progressing. These include the proposal to end fixed term tenancies and convert all tenancies to periodic tenancies.
This intention was received mostly positively but caused concerns to landlords of student properties. By its very nature, the student market is unique and largely cyclical, given that landlords need certainty that they can recover possession at the end of the academic year to re-let to new students.
These landlords will be reassured therefore that the notes also confirm that a new ground for possession will be introduced to give them back some power to evict students at the end of the year. While no detail has yet been given, this represents a welcome development.
The Speech also announces the scrapping of proposals requiring landlords to meet EPC rating C from 2025 in their private rented (residential) properties. This follows the Prime Minister’s prior announcement to the same effect in September 2023.
As for the unintended consequences of the Bill as set out in our previous Law-Now, it remains unclear how professional and institutional landlords will respond to the lack of clarity about the future of the landlord and tenant relationship. It was always going to be a sizeable challenge in balancing the rights of these landlords and it may very well be that these difficulties have contributed to the delays in abolishing section 21 notices.
Click here for further details of the King’s Speech.