We already know that there will be a (residential) leasehold reform bill as part of the King’s Speech, but the Sunday Times today (29.10.23) has some more details about what might be included.
Leasehold houses
The most eye-catching proposal is probably the least important. We’re told that “All new houses in England and Wales will have to be sold as freehold properties”. That’s hardly new. It’s been government policy since Sajid Javid was (briefly) housing minister (i.e. back in 2016/17) and, frankly, the announcement of the policy has already largely destroyed the market in leasehold houses (see the House of Commons briefing here, para.2.2). There isn’t really any good reason to create leasehold houses these days so this is a welcome development. But the detail will be really important. Two things spring to mind.
First, the demise of leasehold houses means that estate rentcharges will becomes more important (to ensure that freehold houses pay towards communal estate services – I know this is sometimes referred to as “fleecehold” but that’s a debate for another day). The truly remarkable powers given to those who want to enforce payment of rentcharges in s.121, Law of Property Act 1925 need urgent reform (I’d say repeal). As we discuss here, and as this case shows here, non-payment of a rentcharge can result in your losing your home by a process which is even more draconian than forfeiture!
Secondly, what exceptions will there be? I would expect National Trust properties will be excluded. Crown land? ,Functional land of charities? Retirement properties where the lease includes deferred service charge payments (event fees providing a lump sum into the service charge on sale)?
Crucially, this is only about houses. Leasehold looks like it’ll remain the default for flats. If there is going to be a serious move to commonhold, then it doesn’t look like it’ll be in this Bill. And, frankly, that is a huge omission.
Ground rents
One good thing that this government has done is abolish ground rents with prospective effect for leases granted after the Leasehold Reform (Ground Rents) Act 2022 came into force. But this has created a two-tier market. New leases have no ground rent whereas older ones do. And these ground rents can be a problem. From the “doubling” scandal, to RPI increases which are painful in times of high inflation, to creating a problem with the assured tenancy trap (rents at such a level as to arguably make the lease an assured tenancy), leaseholders, potential purchasers and mortgage lenders have all become concerned about ground rents, so where there are two similar flats, one with a ground rent and one without, it doesn’t take a genius to figure out which one is the more attractive option.
But what to do about this? Well, apparently there will be a consultation on capping existing rents at a peppercorn. That’s frustrating for two reasons. First, why do we need more consultation on this issue? Secondly, capping existing rents at a peppercorn without *someone* paying *some* compensation to the person entitled to recieve the rent is obviously not compatible with Art.1, Protocol No.1, ECHR and the government shouldn’t give people false hope. A statutory buy-out formula (such as exists for “profit” rentcharges) could be human rights compliant, even if it doesn’t result in 100% “market value” recovery. That sort of reform is surely more likely and more sensible. Unless the government intends to use public funds to compensate freeholders for the loss of ground rents?!
Lease extensions
This looks promising. The proposal is that all lease extensions (houses and flat) will now be for 990 years. Not only will it mean that a single lease extension solves the “wasting asset” problem forever, but it’ll also likely make enfranchisement easier and cheaper, since the residual value of a freehold subject to 990-year leases is obviously less than one subject to, say, a 90 year lease. What is slightly confusing is the suggestion that the government will abolish the requirement that you’ve lived in the property for two years before you can extend your lease. The “resident occupier” condition was abolished in 2002. I assume they mean that there will be no need to have owned the flat for two years (as is the case now). I’m more lukewarm on that reform. One negative consequence of the abolition of the residence test in 2002 was the growth in speculators buying flats and then seeking to extent/enfranchise. Why are we encouraging that? This is – or should be – legislation to help people fully enjoy their homes, not legislation to help someone build a property portfolio.
And the remainder
The Times also points to reforms on service charge and the right to manage. The latter is, I assume, going to be largely lifted from the Law Com proposals (‘tho some of those need updating in light of case-law developments) but I suspect will be relatively uncontrovercial. The service charge reforms could cover such a wide range of options that we’ll need to see what is proposed before forming a view.
In short, whilst this is all very welcome, it rather feels like the least that could be done given the huge number of policy announcements over the last decade and three large Law Com reports. Partly that may just be the political reality. We’ve only got a year or so left before there must be an election. Gove is already going to have a big fight on his hands to get the Renters (Reform) Bill past some of his own backbenchers (and the Tory Lords). Does he really want to pick another fight on, say, compulsory commonhold for new developments? But, should we have a Labour government at the next election, it means there will still be quite a lot given that their current policy is to enact all three Law Com reform reports (enfranchisement, RTM and commonhold) in full.