Summary
The Government’s decision to call a snap election for 4 July caused immediate shockwaves throughout the country. A less obvious but, perhaps, more long-lasting consequence was that any outstanding Bills had to be passed before the dissolution of Parliament on 24 May.
Faced with this sudden deadline, the Government had to decide which Bills to push through and which would be scrapped at the last moment. The Leasehold and Freehold Reform Bill, a cornerstone of the Government’s longstanding promise to improve home ownership for leaseholders, was one of the very last Bills to be debated in the House of Lords and received Royal Assent on 24 May becoming the Leasehold and Freehold Reform Act.
Other bills, including the controversial Renters (Reform) Bill, did not make the cut and are now left with an uncertain future.
Leasehold and Freehold Reform
Our previous series of Law-Now’s (latest one here) set out the headline objectives of the Leasehold and Freehold Reform Bill, which reflected the Government’s commitment to making enfranchisement ‘cheaper and easier’ for residential leaseholders.
Most of the key policies had been debated and agreed by the Lords prior to the final reading, with the majority of the amendments on 24 May intended to tidy up the drafting of the Bill.
The Bill received Royal Assent and officially became law, the Leasehold and Freehold Reform Act (the Act), on 24 May 2024. The Act will have a significant impact on residential leaseholders in England and Wales.
While they are not technically bound to comply with leasehold reform legislation, the Crown authorities have already confirmed that the Crown will act by analogy with the legislation, subject to specified conditions (see comments of Baroness Williams of Trafford in Leasehold and Freehold Reform Bill - Hansard - UK Parliament).
Key reforms
Key reforms under the Act include:
- Making it cheaper and easier for people to extend their lease or buy their freehold (exercising their enfranchisement rights) so that leaseholders pay less to have, in the Government’s words, “more security in their home”.
- Increasing the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats), removing the inconvenience and expense for leaseholders of future lease extensions.
- Removing the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.
- Giving leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged.
- Removing barriers for leaseholders to challenge their landlords’ unreasonable charges at the tribunal.
- Making it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent of their choice.
- Banning the sale of new leasehold houses so that, other than in exceptional circumstances, every new house in England and Wales will be freehold from the outset.
What is less clear is when these reforms will come into force. The Government previously suggested that they were aiming to bring the majority of reforms into effect in 2025-2026, but ultimately that will depend on the speed with which complex secondary legislation can be implemented. It remains to be seen whether such legislation will remain a priority for whichever Government emerges in power after 4 July 2024.
Omissions from the Act
Multiple Lords expressed their dissatisfaction with the ‘piecemeal’ nature of the Leasehold and Freehold Reform Bill, which they felt would require significant secondary legislation and clarification before the changes will take effect.
The most controversial omission relates to the ground rent payable by existing leaseholders. It had been widely anticipated that liability in existing leases to pay ground rent would be either removed or capped at £250 per year. Despite strong support, this provision did not make it into the final version of the Bill that received Royal Assent and it is not clear how existing ground rent will be dealt with going forward. Such uncertainty is neither good for leaseholders nor institutional landlords.
Similarly, despite the Government recognising that the issue of forfeiture needs to be addressed, no amendments or provisions relating to forfeiture made it into the final version of the Bill.
Renters Reform
Little over a week ago, we wrote about the ever-changing saga of the Renters (Reform) Bill and the changes that tipped the balance in favour of landlords (see our Law-Now here). The announcement of the general election has once more changed everything.
The Government chose not to try and push through the Bill on the final day of Parliament. Failing to finalise this Bill is both a blow to the Government’s key manifesto promise to improve renters’ security but, also, would give a Labour government the chance to revisit the controversial changes we have seen in recent months.
While there is limited detail so far, we would expect Labour to be in favour of returning to the immediate abolition of Section 21 Notices together with implementing stricter conditions and controls for possession claims. Whether they will be able to do so without risking harm to the private rental market will be a challenging test and one which would need to be addressed quickly.
Landlord bodies will no doubt be disheartened by these developments. Significant attempts have been made to forge the Renters (Reform) Bill into an acceptable package but now landlords are left with nothing but uncertainty and concerns that the balance will once more swing back in favour of tenants.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our Privacy Notice.