Specialist lease extension solicitor, Callie Tuplin, and trainee solicitor, Chloe Canham, take a look at the announcements affecting leaseholders made in the 2023 King’s Speech.
On Tuesday, King Charles III gave the first King’s Speech in the House of Commons for 70 years. The King’s Speech set out promising policies on the economy, energy, security, and public health sector. However, conveyancing solicitors across England and Wales were particularly interested in the announcement of the Leasehold and Freehold Reform Bill which intends to empower leaseholders, by making it cheaper and easier for them to extend their lease or buy their freehold. This article explores how the Bill may affect leaseholders, and highlights what we can expect from Parliament over the next week.
I am looking to extend my lease so how does the King’s Speech affect me?
The new Bill outlines the following proposals:
- Increasing the standard lease extension term from 90 years to 990 years
This proposal will enable leaseholders to enjoy a longer tenure of their property, without having to worry about extending their leases in the future. This ought to also make it easier for leaseholders to sell their properties and obtain mortgages.
- Abolition of the 2-year legal ownership rule
Currently, to benefit from the statutory right to extend a lease, leaseholders must have been registered as the owner at the Land Registry for two years. By removing the two-year requirement, leaseholders can exercise their right to the security of freehold ownership or lease extension as soon as they legally own the lease.
- Increasing the 25% ‘non-residential’ limit to 50%
Under English law, for leaseholders to qualify for collective enfranchisement, the commercial area in the building needs to be under 25%. The new bill seeks to increase the current 25% limit, to 50%, meaning more leaseholders in mixed-use properties can purchase their freehold and take over its management.
- Capping Ground Rent
Currently, ground rents cannot be imposed in the grant of brand new leases and lease extensions for the extent of the extended term. There is a new discussion to consider capping ground rents across all existing leases within England. However, this is not a proposal but is open to consultation for a period of 6 weeks from 9th November 2023. This proposal would be welcomed by all leaseholders who suffer with historic onerous and doubling ground rents, which may currently be preventing them from selling or re-mortgaging the property. Under current legislation, leaseholders often have to pay in the thousands to their Landlord to remove the ground rent, and the only process to force the Landlord to amend these ground rents is to begin a statutory lease extension, even if they do not require the additional years. If the consultation were to pave the way for a further change in law, this could be a game changer for leaseholders.
I own a residential leasehold so how does the King’s Speech affect me?
The new Bill outlines the following proposals:
- Setting stringent deadlines
This proposal will fix a maximum time and fee for the provision of information required to make a sale to a leaseholder, by their freeholder. Consequently, freeholders will be forced to give prompt responses, which will ease the process of buying and selling leasehold properties and hopefully, reduce that dreaded period of waiting for a response!
- Requiring transparency over leaseholders’ service charges
Increasing transparency over leaseholders’ service charges results in leaseholders being better informed over the costs charged by freeholders, holding freeholders up to scrutiny and giving leaseholders an avenue to better challenge unreasonable service charges.
- Replacing buildings insurance commissions with transparent administration fees
Currently, freeholders can charge extortionate commissions on top of their premiums which they are failing to divulge to leaseholders. This reform will prevent freeholders from charging commissions, meaning leaseholders will pay less for premiums, which will also be more transparent.
- Extending access to redress schemes for leaseholders
The proposals will implement redress schemes for leaseholders to challenge poor practice. Freeholders will be obliged to join a redress scheme, providing leaseholders with an avenue to challenge unfair freeholders. The reforms also propose to scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice. These reforms intend giving leaseholders more control over their properties, and hold freeholders to scrutiny, without fearing legal costs.
- Granting freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders
Conversely, the proposals will also enhance freehold homeowners’ protection by extending equivalent rights to transparency over their estate charges, giving them access to redress schemes and the ability to challenge charges by taking a case to a Tribunal.
The mystery of marriage value
Interestingly, Parliament failed to comment on its commitment to ban Marriage Value which was expressed previously by the Minister of State for Housing and Planning, Rachel Maclean on the 7th November. Marriage Value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. Whether marriage value is to be abolished or amended is unclear however, it is certainly an area to watch.
The reforms are now in the powerful hands of Parliament who will debate, over the course of the week, which of these reforms the government will enact. It will be an exciting, yet nail-biting week of anticipation to see which of these proposals will bloom into fruition.
If you have any questions regarding extending your lease, or regarding collective enfranchisement, our team of specialist leasehold solicitors can offer assistance.
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