Leasehold Reform – where are we now?

After relatively little noise from the Government following the King’s Speech on 17 July 2024, which made clear 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 Conservative Government’s Leasehold and Freehold Reform Act 2024 (“LAFRA”) Mathew Pennycook, Minister of State for Housing and Planning, finally made a statement on 21 November 2024.

The 2024 Act was enacted in the pre-election wash up on 24 May 2024, and only includes a select number of the Law Commission’s recommendations to make enfranchisement easier and cheaper, none of which are yet in force.

Matthew Pennycook referred to the Government being determined to honour the commitments made in their manifesto and to finally bring the “feudal” leasehold system to an end. He referred to the millions of leaseholders and residential freeholders who are currently suffering as a result of unfair and unreasonable practices, appreciating the need to “act urgently” to address the issues, and expressing the Government’s intention to continue to work at pace, but taking the necessary time to ensure that the reforms are fit for purpose.

He does however identify what he describes as “the significant complexity of the task” and the importance of taking the necessary time to ensure that reforms are watertight, which appears to be a veiled reference to the challenge mounted by a group of landlords to the legislation on human rights grounds.

The message is that commencing the provisions in the Act that are not yet in force will require an extensive programme of detailed ‘secondary legislation’ i.e. laws created by ministers which ‘fill in the gaps’ and provide practical measures to enable the law to be enforced. But Matthew Pennycook also referred to the Government’s frustration at not being able to bring other important measures in LAFRA into force, including the new valuation process, until a number of specific but “serious flaws” in the 2024 Act have been fixed through another Act of Parliament. The finger is firmly being pointed at the previous Government.

The Government’s intended sequencing for bringing the provisions of the 2024 Act into force is announced as follows:

• In January 2025 the two year ownership requirement before a leaseholder can claim an extended lease of their flat or the freehold of their house will be removed, which will give more leaseholders control over their properties from the point of purchase;
• In Spring 2025 the right to manage provisions will be brought into force, and so allowing more leaseholders in mixed use buildings to take over management from their freeholders. In most cases leaseholders making claims will no longer have to pay the freeholder’s costs in the process;
• “Very shortly” consultation will begin on the detail of the Act’s ban on buildings insurance remuneration, such as commission for landlords, property managing agents and freeholders being charged through the service charge and replacing them with transparent and fair fees;
• In 2025 consultation will begin on the Act’s provisions on service charges and legal costs, with a view to bringing these measures into force as quickly as possible. Leaseholders will be able more easily to challenge unreasonable service charges and landlords will be required to apply to the relevant court or tribunal for approval before they can pass legal costs from such challenges back to leaseholders;
• In Summer 2025 consultation will begin on the valuation rates used to calculate the cost of enfranchisement premiums. Parliament will then need to approve the related secondary legislation, as well as fixing by yet another Act of Parliament what the Government describes as “serious flaws” in LAFRA before full implementation. If the consultation is not going to start until the Summer of next year (and for something so important, one might wonder why) there seems little chance of this being on the statute books before 2026; and
• In 2025 consultation will begin on implementing the Act’s consumer protection provisions for residential freeholders on housing estates subject to unfair charges.

Matthew Pennycook criticised the Act for not going far enough, having overlooked a number of the Law Commission recommendations relating to leasehold enfranchisement, enacting only eight relating to the right to manage and containing none relating to commonhold.

Furthermore, Matthew Pennycook identified that the Act left untouched problems such as unregulated and unaffordable ground rents, the poor quality of service provided by some managing agents, and the threat of forfeiture.

In the King’s speech, the Government made clear that it would publish a draft Leasehold and Commonhold Reform Bill. It is intended that this will be published in the second half of next year. A central focus of the Bill will be to reinvigorate commonhold. The intention is to make commonhold the default tenure by the end of this Parliament and so consultation will begin with the publication of a White Paper early next year on the best approach to banning new leasehold flats so that this can work alongside a ban on leasehold houses.

The Bill will also consider a number of reforms to the existing leasehold system, including the manifesto commitment to tackle unregulated and unaffordable ground rents, remove the threat of forfeiture and consult on new reforms to major works consultation procedures.

Although Matthew Pennycook refers to abolishing the “feudal” leasehold system, no detail about that was outlined in his statement, but the subtext is that the Government accepts that leasehold itself can never be banned, just its “feudal” ills which the Government is intending to address through commonhold.

It is clear that the process is going to be slow and cumbersome and that, with the exception of removing the two year ownership rule, none of the other provisions relating to enfranchisement are going to happen anytime soon, possibly not for many years whilst the various consultations are pursued and secondary legislation drawn up.

If you have any questions regarding leasehold and freehold reform please contact Katherine Simpson or any member of the Residential Property team.

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