On Tuesday 20 December MPs will take part in a general debate on leasehold and commonhold reform. This debate was scheduled by the Backbench Business Committee following a representation from Jim Fitzpatrick MP and Sir Peter Bottomley MP. This House of Commons Library briefing provides background information for the debate.
This information should not be relied upon as legal or professional advice. Read the disclaimer.
On 21 December 2017, following a consultation exercise, the Government announced plans to tackle the growing problem of newly built houses sold as leasehold rather than freehold, and to limit ground rents on new lease agreements. Leasehold reform was included in the Law Commission’s 13th Programme of Law Reform with the aim of finding ways to make buying a freehold or extending a lease “easier, faster, fairer and cheaper.”
The Law Commission’s work
The Law Commission’s work on leasehold reform is complete. The Commission carried out a full review of enfranchisement law and procedure. Enfranchisement describes buying the freehold interest or extending a lease agreement.
On 19 July 2018, the Commission published proposed measures (PDF 477 KB) to help existing leasehold homeowners buy the freehold of their houses. In September 2018 a consultation paper (PDF 7.12 MB) proposed “a new, single regime for leasehold enfranchisement designed to benefit leaseholders of houses and flats.”
On 9 January 2020, the Commission published Leasehold home ownership: buying your freehold or extending your lease – Report on options to reduce the price payable (PDF 3.49MB). A final report on reforming all aspects of leasehold enfranchisement was published on 21 July 2020 entitled Leasehold homeownership: buying your freehold or extending your lease (PDF 13.91MB). A summary report (PDF 470KB) was published alongside.
The Law Commission also reviewed leaseholders’ Right to Manage. A consultation exercise was launched in January 2019 with a final report published on 21 July 2020: Leasehold home ownership: exercising the Right to Manage (PDF 3.68MB). There is also a summary document (PDF 414KB).
The Law Commission issued Commonhold: A Call For Evidence (PDF 771 KB) on 22 February 2018. A public consultation exercise launched on 10 December 2018 with a final report published on 21 July 2020: Reinvigorating commonhold: the alternative to leasehold ownership (PDF 5.78MB) together with a summary document (PDF 647KB).
A two-part legislative process
On 11 January 2021, Robert Jenrick, the Secretary of State, said leasehold reform would be tackled through two pieces of legislation.
The Leasehold Reform (Ground Rent) Bill (PDF 694KB) was introduced in the House of Lords on
12 May 2021. This Bill will fulfil the commitment to “set future ground rents to zero.” The provisions will apply to leasehold retirement properties, but not before 1 April 2023.
Future legislation will:
- Reform the process of enfranchisement valuation used to calculate the cost of extending a lease or buying the freehold.
- Abolish marriage value.
- Cap the treatment of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value. An online calculator will simplify and standardise the process of enfranchisement.
- Keep existing discounts for improvements made by leaseholders and security of tenure.
- Introduce a separate valuation method for low-value properties.
- Give leaseholders of flats and houses the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”.
- Allow for redevelopment breaks during the last 12 months of the original lease, or the last five years of each period of 90 years of the extension to continue, “subject to existing safeguards and compensation”.
- Enable leaseholders, where they already have a long lease, to buy out the ground rent without having to extend the lease term.
Responses to the Law Commission’s remaining recommendations on enfranchisement, commonhold and right to manage will be issued “in due course” and translated into law “as soon as possible”.
On 13 May 2021, the Government launched the Commonhold Council – an advisory panel of leasehold groups and industry experts to inform the Government on the future of this type of homeownership.
On the timing of future legislation, Lord Greenhalgh, the Minister responsible for leasehold, responded to questions on 5 January 2021 and said:
We need primary legislation. I have been told by Professor Hopkins, who was in charge of the Law Commission work, that the preparations to get primary legislation ready for consideration by noble Lords will take approximately one year, so we are probably talking about the third Session.
Related Government proposals
The Government has said it will:
- Require the regulation of all property/managing agents. A working group has developed recommendations for the regulatory regime, see: Regulation of Property Agents Working Group: Final Report (PDF 655 KB), (July 2019). The Government is considering the recommendations.
- Make buying and selling a leasehold property easier with timescales for agents and freeholders to respond to leasehold queries and maximum fees. There’s an intention to introduce standard mandatory forms for leasehold information.
- Establish a Redress Reform Working Group with ombudsmen and redress schemes to help drive the programme of reform, including the setting up a housing complaints resolution service. The Group was established in summer 2019. Work was paused during pandemic but the Government “continue to work on improving redress and meet with members of the Redress Reform Working Group.”
Leasehold reform in Wales
On 1 May 2018, the Welsh Housing and Regeneration Minister at that time, Rebecca Evans, announced that the Welsh Government had joined the Law Commission’s leasehold reform project. A multi-disciplinary task and finish group on leasehold reform was established. The Task and Finish Group issued a report, Residential Leasehold Reform (PDF 892 KB), in July 2019 which was described as “just the end of the first key stage of the work” the Group is undertaking.
Additional research into the sale of use of leaseholds in Wales was published on 16 March 2021. On 17 March, Julie James MS, Minister for Housing and Local Government, set out her intentions on leasehold reform in Wales, including:
Restricting future ground rents to zero for leasehold properties in the third phase of Help to Buy-Wales.
Paving the way for a permanent restriction of future ground rents to zero. The Leasehold Reform (Ground Rent) Bill currently before Parliament extends to, and will apply in Wales. Julie James said: “I have written to the UK Government to request Wales be included in upcoming legislation restricting ground rents in new leases. Whilst it will, of course, be for the next Senedd to consider the merits of the ground rents legislation in respect of Wales, through the legislative consent process, it provides an opportunity to achieve the changes in the shortest possible time for prospective leaseholders in Wales”.
Seeking the UK Government’s agreement to officials working together “to explore a joint approach to legislation enacting the Law Commission’s recommendations for leasehold reform for England and Wales.”
Library briefing paper: Leasehold and Commonhold Reform
The Commons Library does not intend the information in this article to address the specific circumstances of any particular individual. We have published it to support the work of MPs. You should not rely upon it as legal or professional advice, or as a substitute for it. We do not accept any liability whatsoever for any errors, omissions or misstatements contained herein. You should consult a suitably qualified professional if you require specific advice or information. Read our briefing for information about sources of legal advice and help.
We look at the issues surrounding leaseholds and where they are most likely to take place.
Help with long leaseholders housing questions including service charges and acquiring the freehold interest.