The Leasehold and Freehold Bill: what do the proposals mean?

The proposal for a Leasehold and Freehold Bill in the King’s Speech on 7 November 2023 demonstrates an ongoing and determined commitment by the government to reform the residential leasehold sector – and for leaseholders and freeholders, there are immediate questions and considerations.

While the provisions outlined in relation to the proposed Bill fall short of making it mandatory for all new flats to become freehold, there is clear evidence of a determined resolve to make real and lasting change in this area.

The fact that there is no promise of a ban on new leasehold flats will upset many who have been campaigning for this to be the case. This is because commonhold, the possible alternative to leasehold which has been on the statute books since 2002, is not yet ‘fit for purpose’. A lot more work needs to be done to the current version of commonhold and the government recognises this.

The plans that have been outlined so far suggest a number of changes that will be of significant interest to leaseholders looking to extend their leases or buy their freeholds, assuming of course that these proposals are in fact carried forward into law. For freeholders, there is less good news as it appears that the Bill would significantly impact the value of their assets. 

 What are the proposed changes?

The proposed changes announced have all been the subject of previous commentary or commitments given by the government since the White Paper ‘Fixing our Broken Housing Market’ (February 2017), and the subsequent consultation ‘Tackling Unfair Practices in the Leasehold Market’ (2017) and the government’s response to this. This process culminated in the Law Commission’s extensive review of the law relating to the areas of enfranchisement, commonhold and the right to manage in 2018, with its outcome reports in each area published in 2020.

A summary of the ‘headline news’ relating to the each of the proposed reforms as announced on 7 November 2023, and what these might mean for leaseholders, appears below:

Increasing the standard statutory lease extension term from 90 years to 990 years

This change will ensure that once extended, a lease will never need extending again under the statute.

Even if no other reforms are introduced to the valuation mechanism, the additional cost of making the lease this much longer will not be significant as the ‘expensive’ part of a lease extension relates to the part that is nearest the end of the lease term and the cost of extending beyond that diminishes in a non-linear, decreasing way.

This is a common-sense change and one that will avoid the need for statutory claims to be repeated where the original lease is short. Both freeholders and leaseholders are likely to find this a workable change, particularly as the proposals are very likely to retain the landlord’s redevelopment break rights, meaning that consistency of estate management will be preserved.