253: What is the Leasehold & Freehold Reform Bill and what does it means for leaseholders?

On 27 November 2023, the Government published the first draft of the Leasehold and Freehold Reform Bill (the ‘Bill’) which is intended to make long-term and necessary changes to improve home ownership for millions of leaseholders in England and Wales.

The main aims of the Bill are to bolster the rights of the five million leaseholders across England and improve home ownership across the wider property market in relation to lease extensions and enfranchisement. The key reforms are as follows:

• to increase the standard lease extension terms for houses and flats to 990 years with ground rent reduced to a peppercorn upon payment of a premium;
• to remove the two-year ownership requirement;
• to increase the 25% ‘non-residential’ limit;
• to include a ‘new standard valuation basis’ (which will remove marriage value, currently payable on leases with terms of less than 80 years, cap ground rents, and prescribe deferment and capitalisation rates); and
• to require landlords to pay their own costs.

What has been the response to the Bill?

There has been a mixed response from the industry. The reforms related to making the process easier and more accessible are welcomed. The valuation aspects are more contentious and will need to be debated in Parliament.

There is a possibility that those with vested interests, such as large estates, pension and investment funds may challenge the far-reaching reforms as an infringement of their human rights if they deem the changes as disproportionate.

What are the next steps for the Bill and when will it be passed?

The Bill has passed its first and second readings and more recently the committee stage, so it is now at the Report Stage in the House of Commons. The new legislation has been swiftly advancing through Parliament, indicating the Government’s determined effort to deliver on their manifesto commitments on leasehold reform.

The exact amendments and timescales are not yet known, although the Government expect the Bill to receive Royal Assent in the summer of 2024, with the majority of reforms commencing in 2025 and 2026. Some reforms may not be operational until 2028 due to the need to implement secondary legislation.