Getting leasehold reform right

Housing and planning minister Matthew Pennycook recently announced a series of reforms that could herald the end of the ‘feudal’ leasehold system in England and Wales. The government aims to go beyond the changes introduced by the last government in the Leasehold and Freehold Reform Act 2024 (LFRA), which was rushed on to the statute books with Labour support after the general election was called in May.

Designed to provide fairer policies for leasehold properties, the LFRA did intend to make it easier and cheaper for leaseholders to buy their freehold and extend their leases. But overall, it was relatively limited in scope, enacting only some of the Law Commission recommendations concerning enfranchisement and the right to manage. Much of the detail in the act was left to future secondary legislation.

The Labour government’s ambition involves implementing the LFRA reforms, as well as augmenting and refining them through a wider set of reforms, giving leaseholders greater rights, powers and protections over their homes.

It is unrealistic and impracticable for this government (any government) to abolish leasehold in one fell swoop. Furthermore, leases and leasehold buildings (or estates) work perfectly well when they feature good leases, good landlords and good managers. The problems arise with poorly drawn leases; poorly managed buildings; and landlords who have a ‘feudal’ attitude.

In November, Pennycook issued a written ministerial statement about leasehold reform, outlining the scale of the government’s plans to overcome the challenges, prefaced as follows: ‘For far too many leaseholders, the reality of home ownership has fallen woefully short of the dream – their lives marked by an intermittent, if not constant, struggle with punitive and escalating ground rents; unjustified permissions and administration fees; unreasonable or extortionate charges; and onerous conditions imposed with little or no consultation. This is not what home ownership should entail.

‘Over the course of this parliament, the government is determined to honour the commitments made in our manifesto and do what is necessary to finally bring the feudal leasehold system to an end. Given that millions of leaseholders and residential freeholders are currently suffering as a result of unfair and unreasonable practices, we appreciate fully the need to act urgently to provide them with relief.’

Here is a summary of the highlights of Pennycook’s statement:

• This government will not repeat the same mistakes as the last did when it comes to reforming what is an incredibly complicated area of property law.
• Although the government intends to continue to work at speed, necessary time will be taken to ensure that the reforms it passes are fit for purpose.
• Because of inherent flaws in the LFRA, commencing its remaining provisions will require an extensive programme of detailed secondary legislation to remedy them and implement the LFRA. While the government ‘appreciates fully the scepticism that leaseholders feel about yet more consultations’, switching on the LFRA in full will therefore take time. They want to ‘get it right’.
• The government intends to commence the act’s provision to remove the ‘two-year rule’ in January next year. This means that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold, giving more leaseholders control over their properties from the outset.
• Next spring, the right to manage provisions will be brought into force, meaning that more leaseholders in mixed-use buildings can take over management from their freeholders and, in most cases, leaseholders making claims will no longer have to pay their freeholder’s costs.
• Next summer, the government will consult on the valuation rates used to calculate the cost of enfranchisement premiums. In addition to this and other consultations, it will publish a white paper on commonhold reforms early next year. A new Draft Leasehold and Commonhold Reform Bill can be expected in late 2025.

Reference to the two-year rule in the statement suggests that those buying leasehold houses and wishing to enfranchise (that is, buy the freehold or extend the lease of the house) under the Leasehold Reform Act 1967 will no longer need to own for two years before launching their claim. Confirmation that the two-year rule will be removed in January is welcome.

The statement’s timetable for a consultation about valuation rates gives us a good clue. Knowing that a new law was in the offing, owners and buyers of ‘short’ leases (say, less than 80 years) have adopted a ‘wait and see’ approach: if and when the new act is in force, and if (as expected) lease extension premiums go down, they will then extend them. This balancing act turned on various ‘valuation rates’ and how they would change. The minister’s statement confirms that a discussion about (new) valuation rates will not begin until summer 2025.

The broad assumption that the new law would ‘reduce’ premiums for enfranchisement and lease extension has been put on hold by legally coherent claims that such a change in the law would infringe the rights of landlords – that imposing ‘valuation rates’ will deprive them of their valuable property. These claims will inevitably take a very long time to conclude. The government is fully aware of this.

The previous government did not, as its dying wish, really enfranchise the short leaseholder. Given the complexity of the topic, it is right that the new government sets out a timetable to consult on and implement the secondary legislation.

But, sadly, it means that leaseholders, buyers and sellers will have to wait until (at best) late 2025 before they have any visibility on precisely how long they will have to wait for the new law – and any say in how much their premiums may increase or decrease.

James Vernor-Miles is a partner at Hunters, London