As Parliament scrambled to get through last-minute pieces of legislation before it was dissolved for the general election, a new leasehold law that had been a contentious topic has now been passed.
For many years now, but particularly since the topic was thrust into the media spotlight in 2019 amid the “ground rent scandal” that saw homeowners locked into spiralling costs, leasehold reform has been a major talking point in the UK housing market.
In the absence of an adequate leasehold law, some developers had been incorporating clauses into their lease contracts that obliged owners to pay ground rents that could increase substantially, with these charges not being explained clearly to the buyers. In some cases, this meant ground rents doubling every 10 years, or even less.
A number of homeowners found they were then unable to sell their homes due to the rising ground rent costs, leaving them forced to pay.
The issue predominantly affected new-build houses rather than flats, as flats are commonly and historically owned on a leasehold basis – although this is something else that many campaigners wish to change, believing the system to be outdated and unfair on buyers.
Since 2022, ground rent for new leases on new-build house was abolished in the UK. Now, a new leasehold law has come into play, in the form of the Leasehold and Freehold Reform Act, as of Friday 24th May.
What is the new leasehold law?
According to the government, the new leasehold law will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges.
It will also remove barriers for leaseholders to challenge their landlords’ unreasonable charges at Tribunal. It will further ban the sale of new leasehold houses other than in exceptional circumstances, and end excessive buildings insurance commissions for freeholders and managing agents.
The requirement for a new leaseholder to have owned their house or flat for two years before they can buy or extend their lease is also being scrapped under the new leasehold law.
The new powers also grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders, and equivalent rights to transparency over their estate charges, and help more leaseholders take over the management of their property if they want to.
Leaseholders in some buildings are barred from taking over the management of the site or buying its freehold if more than 25% of its floor space is commercial – such as shops or offices on the ground floor. This limit will now be increased to 50% to enable more homeowners to access Right to Manage or the right to a collective enfranchisement.
Buying, selling and renting will be easier
Timothy Douglas, Head of Policy and Campaigns at Propertymark said that while the new leasehold law was “far from perfect”, it marked the beginning of reform of an outdated form of legislation that was “not fit for purpose”.
“Once implemented the new laws will make it more commonplace to extend a lease and information about leasehold property will be made more transparent, which will make buying, selling and renting leasehold property easier,” he said.
“However, the legislation is a missed opportunity to tackle some key issues. Propertymark argued that the legislation needed to go further to incorporate the recommendations for the Regulation of Property Agents.
“At a time where building safety regulations have increased and become more complex, it is shortsighted that policy makers were unwilling to see the benefit to consumers of qualifying and licensing the competency of those who work in the property sector.”
