Leasehold and Freehold Reform Bill 2023-24

The Leasehold and Freehold Reform Bill 2023-24 was introduced to the House of Commons on 27 November 2023. The Bill’s second reading is scheduled for 11 December 2023.

The Bill, together with its explanatory notes (which provide a clause-by-clause explanation of the Bill) are available on the Parliament website: Leasehold and Freehold Reform Bill publications.

The Bill applies to England and Wales. It would make long-term changes intended to improve homeownership for leaseholders and freeholders.

This briefing explains the background to the Bill and the Bill’s main provisions.

What is leasehold tenure?

Freehold is ownership that lasts forever, and generally gives fairly extensive control of the property. Leasehold provides time-limited ownership (for example, a 99-year lease), and control of the property is shared with, and limited by, the freehold owner.

In England and Wales, most flats are owned on a leasehold basis. Around 8% of houses in England are leasehold. All shared ownership properties are leasehold.

The residential leasehold sector accounts for 20% (4.98 million properties) of the housing stock in England and 16% in Wales (approximately 235,000 properties).

Leaseholders have long reported a range of problems with the tenure, including: high service and administration charges and a lack of transparency over charges; disproportionate costs to extend leases or buy the freehold; poor practices by managing agents; a slow and costly sales process; and imbalanced dispute mechanisms, with the potential to become liable for the freeholder’s legal costs.

What measures are in the Bill?

The Bill implements commitments in the 2017 housing white paper to “improve consumer choice and fairness in leasehold” and in the Conservative Party Manifesto 2017 (PDF) to “crack down on unfair practices in leasehold”. It also takes forward many of the leasehold reform recommendations made by the Law Commission in their reports of 2020.

The Bill’s main provisions would:

• make it cheaper and easier for leaseholders in houses and flats to extend their lease and buy the freehold.

• increase the standard lease extension term to 990 years, withground rent reduced to a peppercorn (zero financial value), upon payment of a premium.

• change the qualifying criteria to give more leaseholders the right to extend their lease, buy their freehold and take over management of their building.

• improve the transparency of service charges and ensure leaseholders receive key information on a regular basis.

• give leaseholders a new right to request information about service charges and the management of their building.

• improve the transparency of administration charges and buildings insurance commissions.

• ensure leaseholders are not subject to any unjustified legal costs and can claim their own legal costs from their freeholder.

• give freehold homeowners who pay charges for the maintenance of communal areas and facilities on a private or mixed-tenure residential estate the right to challenge the reasonableness of charges and the standard of services provided.

• improve the transparency of estate charges and ensure freehold homeowners receive key information on a regular basis.

• ensure a rentcharge owner is not able to take possession or grant a lease on a freehold property where the rentcharge remains unpaid for a short period of time.

Alongside the Bill, the Government launched a consultation seeking views on options to restrict ground rents for existing leaseholders. The consultation was due to close on 21 December 2023, but was subsequently extended for a further four weeks until 17 January 2024 . Subject to that consultation, the Government will look to introduce a ground rent cap through the Bill.

The Bill is the second part of a legislative package to reform leasehold law. It follows on from the Leasehold Reform (Ground Rent) Act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales.

What measures are not in the Bill?

The background briefing notes to the King’s Speech on 7 November 2023 said the Bill would:

• ban the creation of new leasehold houses.

• make buying or selling a leasehold property quicker and easier, by setting a maximum time and fee for the freeholder to provide the information required to make a sale.

• require freeholders, who manage their building directly, to belong to a redress scheme.

• protect leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended.

These provisions do not appear in the Bill as introduced to Parliament. The Government has indicated it intends to introduce amendments to the Bill as it makes its way through Parliament.

The Government has also committed to reinvigorate the commonhold tenure and regulate property managing agents. The Bill does not contain these measures.

Reaction to the Bill

The Bill has been broadly welcomed and has cross-party support.

However, the Government has been criticised for not going far enough in its leasehold reforms. Leasehold campaigners, the Homeowners Alliance and others have expressed disappointment that the proposed ban on creating new leasehold houses does not extend to flats. According to The Guardian, some backbench Conservative MPs could seek to amend the Bill to achieve this.

Matthew Pennycook, the Shadow Housing Minister was quoted in The Guardian as saying “commonhold should be the default tenure for all new properties, with the system completely overhauled so that existing leaseholders can collectively purchase more easily and move to commonhold if they wish.”

Groups that represent leaseholder interests, such as the Leasehold Knowledge Partnership (LKP), the National Leasehold Campaign (NLC) and Commonhold Now, have also campaigned for the leasehold tenure to be abolished and replaced by commonhold.

The British Property Federation, which represents the UK real estate industry, has expressed concern about the impacts on freeholders of proposals to increase the enfranchisement threshold in mixed-use buildings and cap ground rents.

The Property Institute, which represents the residential property management sector, considers the lack of any provision to introduce competency standards or regulation to the property management sector a missed opportunity.