The importance of the reforms in the Leasehold and Freehold Reform Bill

The stated aims of the Leasehold and Freehold Reform Bill (as per the government’s briefing note of 3 January) are primarily to ‘improve consumer choice and fairness in leasehold’ and to ‘crack down on unfair practices in leasehold’. This follows commitments in those terms in the Housing White Paper and the Conservative Party Manifesto, both from 2017. These aims have been translated into a number of provisions in the draft bill, intended to: ‘improve’ lease extensions and freehold acquisitions (from the leaseholders’ perspective), make service charges, insurance commission and the provision of related information more transparent and reasonable, as well as dealing with some anomalies relating to rent charges and residential estate charges. Since the Bill commenced its passage through parliament, a number of additional issues have been raised, including the hot topic of leasehold houses, and a disappointing effort to address the regulation and payment of managing (not letting or estate) agents.

The proposed provisions

Many of these provisions are perfectly sensible and long overdue. Some are mainly playing to the gallery and others are unlikely to withstand contact with the world as it is - particularly in the absence of better regulation and remuneration of managing agents. A fair few of the provisions will likely have the unintended consequence of increased charges to leaseholders, or of reputable managing agents refusing to become involved with smaller or more difficult properties. Whether consumers will be prepared to pay for any such additional costs is debatable.

Construction experts will happily debate the anticipated lifespan of a modern home, but not many would venture much further than 150 years. With new lease extension rights resulting in leases of 990 years, it is reassuring to see that provisions allowing redevelopment every 90 years will be included in extended leases. However, it would have been good to see some more detailed thought given as to how, and at whose request buildings can be replaced or sold, and how relevant valuations will be made. There are models in use in other jurisdictions, such as the Singaporean ‘en bloc’ process, which would have made good discussion starting points.

With a second reading in the Lords due by the end of March, there has been a relatively swift journey so far. However, it is a safe bet that on such a key set of issues in an election year, there is likely to be significant opposition and amendment still to come. It is therefore safe to assume that there is still a long road to be travelled before we really know what the profession will need to deal with. It is also possible that more dramatic provisions will be introduced, or that political events will overtake the bill entirely. This uncertainty is currently playing havoc with business models, valuations and consumer confidence, as my team are seeing on a regular basis. Enfranchisement lawyers in particular are being asked to give hostages to fortune in their advice, and can only hope for an early conclusion one way or another.

The consultation

Following on the heels of the Leasehold Reform (Ground Rent) Act 2022 (which effectively put an end to ground rents in new leases) we also had a consultation on restricting ground rents for existing leaseholders. This has been variously heralded as ‘legalising theft’ (from the ground rent owners) or ‘an end to the feudal abuse of leaseholders’. There is no doubt that the repercussions of the more extreme options put forward in the consultation paper would be significant, and not just for specialised ground rent investors. In legal terms it is hard to justify such a retrospective revision, and strong challenges would no doubt follow. While there have been abuses of the ground rent system in the past, those have now been largely and quite properly rectified, and the extra step takes us into a whole new territory of throwing established principles of legal and natural justice out of the window.

Commonhold tenure

In parallel to the provisions mentioned above, we have a related proposal to ‘Reinvigorate the commonhold tenure’. Widely considered moribund throughout much of its more than 20-year history, it is worrying to see this supposed solution so widely touted. In reality, any meaningful shift to commonhold within the next 50 years would be impossible without significant financial input, a massive re-education process, and preferably also the long-term loan of the Land Registry from the Land of the Unicorns.

Conclusion

The faults and complexities of our existing freehold and leasehold systems undoubtedly require ongoing attention. However, the issues would surely be better addressed by targeted and wide-ranging measures, rather than more hurried and ill-considered legislation – although the better regulation of managing and lettings agents must be prioritised.

The education of current and potential homeowners or renters and cheaper and faster redress through the courts in cases of abuse should also form part of the solution. Improving the quality of existing stock and building significantly more almost go without saying, but are no less vital for that. We also need to honestly acknowledge the true costs of property ownership and the difficulties – under whatever system – of living in communal residential accommodation.

Solicitors are confronted daily by the realities of such issues, and while many parts of the bill are to be welcomed, we see the reality of the solutions to the problems in the housing market as rather different from this fixation with tenure (and minor improvements) we are currently being presented with.

Jeremy Raj is the National Head of Residential Property at Irwin Mitchell
irwinmitchell.com