Leasehold reform: Has the legislation lost its way?
While the progress – or rather, lack of progress – of the Renters (Reform) Bill has been much of the private rented sector’s focus recently, the rumoured watering down of the Leasehold and Freehold Bill took centre stage last weekend.
The Sunday Times was the first to report that Number 10 and the Treasury had blocked moving to peppercorn ground rents behind the scenes, concerned about the impact on pension investments.
Ground rents – a peppercorn?
The Secretary of State, Michael Gove, has publicly been adamant that he will reform leasehold, calling it a ‘feudal’ practice. He has been vocal about wanting to restrict ground rents to a ‘peppercorn’ ie a notional amount.
The Bill has been debated and amended by MPs, which is now being considered by the Lords. Second reading in the Lords – a first opportunity for peers to debate the principles and purpose of the Bill – took place on Wednesday.
In its current form, the Bill provides a new right for leaseholders to be able to – on payment of a premium – renew their leases for 990 years with ground rents at a peppercorn.
The Lords debate highlighted, however, that the Government is still considering its response to the consultation earlier this year on also applying a peppercorn rate to existing ground rents.
Opposition says reform must go further
Baroness Tayor of Stevenage (Labour) was firm in her position that the Bill does not go far enough. She confirmed the Labour Party will not oppose the Bill, ‘even if we have to finish the job later on’, and that they will table amendments to try to move the Bill towards a more comprehensive reform of the leasehold system.
The debate highlighted commonhold – an area Michael Gove has spoken about, but which is missing from the Bill. Labour and others are pushing for commonhold to replace leasehold – whereby individuals own the freehold of their ‘unit’ and share the commonhold of common parts.
A number of peers also called for implementation of the recommendations from the 2019 report on the regulation of property agents, including managing agents – something missing from the Bill entirely.
There was also debate about so-called ‘fleecehold’ estates – where leaseholders are liable for the costs of maintaining roads and green spaces in private estates, rather than local authorities. This comes off the back of more than 40 Conservative MPs writing to the Government asking them to include a ban on ‘fleecehold’ in the Bill.
Building safety
The Bill provides further clarification on aspects of the Building Safety Act 2022, to further prevent freeholders and developers from escaping their liabilities to fund building remediation work, in order to protect leaseholders.
In addition, on 21 March the Government launched a new call for evidence on leaseholder protections for the cost of remediating building safety defects.
At present a landlord qualifies for leaseholder protections where they own no more than three properties. So, if a couple owned their own home and two buy to let properties then they would qualify for protection. If the same couple owned four properties, they would not qualify.
However, where a couple are joint owners of one property, but each have separate portfolios, it works differently. In these cases, each landlord would be separately assessed, meaning that the couple could retain protections while owning up to five properties (one joint property and two properties in each person’s name).
The call for evidence seeks views on changing this, and may lead to a change in the requirements for qualifying for leaseholder protections.
Given this, if you are a leaseholder or landlord of leasehold property owned jointly by two or more individuals, we would strongly suggest you respond to the call for evidence via the Government’s online survey by Friday 5 April 2024.
