Will the ‘feudal’ leasehold system finally be overhauled?

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In what is expected to be one of the first pieces of legislation introduced in the parliamentary session before Christmas, ahead of the King’s Speech, the Government has announced plans to draft a ‘Leasehold Bill’, which if successful could dramatically reform the current leasehold system.

As first reported in The Times over the weekend, the proposals include prohibiting houses from being sold as leasehold properties (although flats will continue to be leasehold), and also abolishing the annual ground rent provisions contained in existing leases (including flats).

Whilst the introduction of the Leasehold Reform (Ground Rent) Act 2022 imposed restrictions on the inclusion of ground rent provisions in new leases granted from 30 June 2022 onwards, the Act did not apply retrospectively, and therefore at present the owners of properties with leases granted prior to that date are still commonly required to make annual ground rent payments to the landlord, which can often be so expensive that they adversely affect the value of the property.

Eliminating ground rents in existing leases will, in turn, also make it cheaper for leaseholders to collectively purchase their landlord’s interest in their building, meaning that this option will become far more achievable for the owners of flats across the country. By purchasing the landlord’s interest in their building, leaseholders will obtain a greater level of control over general management matters and their annual service charge expenditure.

Other proposals in the Government’s plans include increasing the number of additional years available to flat owners through the statutory lease extension route from 90 years, as currently prescribed by the Leasehold Reform, Housing and Urban Development Act 1993, to 990 years instead. This increase would finally bring into law the recommendations of the Law Commission following their report on Leasehold Enfranchisement Reform, which was first published in July 2020. The powers available to leaseholders under the ‘Right to Manage’ rules are also set to be widened.

Whilst the Government’s plans to reform the leasehold system will be welcome news to millions of leaseholders in the UK, landlords of buildings and estates that include leasehold properties should also ensure that they carefully prepare for the changing legal landscape. Due to the historic position with ground rents being payable to landlords, freehold interests in buildings have for many years been widely considered a valuable commodity – the reforms would, if successful, significantly reduce the viability of a building as an income-producing asset, making it far less attractive for potential investors.

Only time will tell which of the proposals will be implemented as law, but given Michael Gove’s assessment that the current leasehold structure is an “outdated feudal system that needs to go”, it is clear that significant property law reform is high on the Government’s agenda – so watch this space.

If you are looking for advice on leasehold asset management, or would like to speak to a Residential Property solicitor please give us a call on 01279 295047 or complete our enquiry form and we will be in touch.

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