The upcoming leasehold reforms in England and Wales are a significant development. The proposed bill, set to be introduced in Parliament, aims to transform the current leasehold system in England and Wales. Housing Secretary Michael Gove has expressed confidence that this bill will be passed before the next general election, expected in 2024. The main objectives of the bill are:

• Banning Leaseholds for New Houses: The bill plans to prohibit the sale of new houses as leaseholds. However, it does not extend this ban to flats.
• Easing Lease Extensions and Freehold Purchases: It intends to simplify and reduce the cost for homeowners looking to extend their leases or buy their freeholds.

Current Leasehold Challenges

Under the existing system, leaseholders often face substantial ground rent and maintenance charges. This is because they only own the right to use the property, not the land it’s built on. The new legislation aims to make service charges and ground rents more transparent and reasonable.

Implications for Homeowners and Investors

Potential Benefits

• Increased Lease Extension Period: The standard lease extension would jump from 90 years to a striking 990 years.
• Cost-Effective and Simplified Processes: Extending a lease or purchasing a freehold should become less complicated and expensive.
• Enhanced Transparency and Fair Practices: The bill proposes standardizing service charge bills and banning excessive buildings insurance commissions.

Drawbacks and Criticisms

Some campaigners have expressed disappointment that the ban on new leasehold sales does not include flats. This is significant because flats constitute 70% of the estimated five million leasehold homes in England.

The Current State and Future of Leaseholds

Trends and Government Stance

• Decreasing Leasehold Houses: There’s been a notable decrease in the proportion of new-build houses sold as leaseholds, from 15% in 2016 to just 1% in December 2022.
• Government’s Long-Term Goals: While the current bill does not abolish leaseholds entirely, Mr. Gove has reiterated his commitment to phasing out the leasehold system over time.

Political Landscape and the Bill’s Journey

The bill enjoys widespread support in both the House of Commons and the House of Lords. However, there are reports that some Conservative MPs might seek to amend the bill to include a ban on leaseholds for new flats as well. Labour has indicated support for such amendments.

The Path Ahead

While the government is keen on pushing the bill swiftly, the complexity of the legal area means that careful consideration of amendments is essential. The goal is to assist as many people as possible without compromising the bill’s effectiveness.

Public Response and Continued Advocacy

Campaigners like Katie Kendrick, founder of the National Leasehold Campaign, have welcomed the bill but remain cautious, emphasising that “the devil will be in the detail.” There’s also a push for adopting a commonhold system for new flats, which would enable occupants to jointly own and manage their buildings.

The Future of Leasehold and Commonhold Systems

Labour has advocated for commonhold to become the default tenure for all new properties and seeks an overhaul of the system to facilitate the transition for existing leaseholders.

Conclusion

These leasehold reforms represent a significant shift in the UK’s property landscape. For current and prospective property investors, understanding these changes is crucial. The reforms aim to provide greater fairness and transparency, potentially making property investment more attractive and equitable in the long term.