The Leasehold And Freehold Reform Bill

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As discussed here, this Bill was first mentioned in the King's Speech on 7 November 2023. It has recently completed its report stage in the House of Lords...
UK Real Estate and Construction
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As discussed here, this Bill was first mentioned in the King's Speech on 7 November 2023. It has recently completed its report stage in the House of Lords, meaning that its next stage will be its third reading when its provisions will be tidied up. The Bill is lengthy but, contrary to the press release and surrounding speculation, the Bill does not contain drafting around the introduction of commonhold or the capping of ground rents. The Bill includes the following provisions:

1. A ban on the grant or assignment of long leases of houses

Part 1 of the Bill bans the grant or assignment of long residential leases of houses, apart from "permitted long residential leases". A lease is a long lease if its term exceeds 21 years, is part of a series of leases whose terms extend beyond 21 years or is granted for perpetual renewal. Permitted long leases include some retirement housing leases, some leases granted out of historic leasehold estates, some community housing leases and leases of certain National Trust property. Landlords granting new permitted leases will need to obtain a "permitted lease certificate" from the Tribunal prior to grant. This certificate must be included in all marketing materials relating to the grant or sale of the lease, and may also form part of the bundle of information sent to the tenant by the landlord at least 7 days before the lease is granted. Every new long lease must also contain a statement saying whether or not it is a permitted long lease of a house, and a breach of this requirement will result in a restriction being entered on the registered title prohibiting dealings (other than charges) until the lease is made compliant.

2. Leasehold enfranchisement and lease extension, and the right to manage

In parts 2 and 3 of the Bill, the Government will implement some of the Law Commission's recommendations to make it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold. This will include increasing the standard lease extension term from 90 years to 990 years at a peppercorn rent, and removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these rights. There are also provisions to increase the 25 per cent 'non-residential' limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices from buying their freehold or taking over management of their buildings, and allow leaseholders in buildings with up to 50 per cent non-residential floorspace to buy their freehold or take over its management. Further discussion of some of the issues this raises for landlords can be found in our briefing on the Government's proposals on mixed-use buildings.

3. New right to buy out a tenant's rent

Part 3 contains a new right for leaseholders of houses and flats to vary a long lease to replace the ground rent with a peppercorn rent, in return for a premium, without having to extend their lease.

4. Improving leaseholders' consumer rights

Various protections contained in the Landlord and Tenant Act 1985 (s.18 onwards) are currently only applicable if the tenant pays a variable service charge. Part 4 of the Bill will extend these rights to fixed service charges. This Part of the Bill will also allow leaseholders to obtain service charge information from their landlord on request, introduces a requirement for transparency over leaseholders' service charges as well as mandating the replacement of buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees, so that leaseholders are no longer charged commissions on top of their premiums; and the ending of the presumption that leaseholders will pay their landlord's legal costs in connection with a challenge over poor practice.

5. Protection for freeholders paying service charges

People who pay service charges to an estate management company currently have to rely on the terms of their contractual arrangements with the management company. The CMA has raised concerns about this practice as part of its study of the housebuilding sector. Part 5 of the Government's proposed Leasehold and Freehold Reform Bill would grant freehold homeowners on private and mixed tenure estates rights of redress regarding service charges, by establishing rights to transparency over their estate charges, access to support via redress schemes, and rights to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders. Part 6 will oblige landlords and their agents to join a redress scheme if they provide estate management services. As reported on in more detail here, the CMA is not satisfied that the Bill actions all its recommendations in this area.

6. Rentcharges

Rentcharges have long been considered to wield disproportionate sanctions because under current laws a failure to pay sums due to the rentcharge owner can result in forfeiture. Part 7 of the Bill will modify this so the rentcharge owner can no longer take possession or grant a lease on the property where the rentcharge remains unpaid for a short period of time.

7. Remediation of building defects

Part 8 of the Bill contains six amendments to the Building Safety Act 2022 to strengthen leaseholder protections.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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