Leasehold Reform: change is on the horizon in 2023
Following the Housing White Paper back in February 2017, the Government has long committed to 'fixing the broken housing market'.
We have seen various consultation exercises from the Law Commission and in early 2021, the Government announced imminent plans to reform the future of homeownership in England and Wales which had been heralded as “the biggest shake-up of the private rented sector in 30 years”.
Following a number of drawn-out setbacks, June 2022 saw the start of the foreshadowed leasehold reforms, with the ‘Leasehold Reform (Ground Rent) Act 2022’ (LRGRA). The LRGRA put a stop to ground rents for new, qualifying long residential leasehold properties in England and Wales. The motivation for the Act was to prevent leaseholders from being obligated to pay arduous and escalating ground rents, with no evident servicing in return. A key aim was to combat the uncertainty and injustice facing leaseholders. This legislation now restricts ground rents reserved in new residential leases to a peppercorn.
Despite this step forward, it is reasonable to say that this was not seen as the most seismic of the proposed reforms.
Regrettably, in the absence of a crystal ball, we remain unclear as to exactly when any of the further reforms might come to pass, but there are indications that the Government will adopt several of the recommendations set out by the Law Commission. ‘The biggest reform to property law in a generation’ will have a significant impact on landlords of prime residential property with recommendations suggesting broadening the scope of the collective freehold acquisition of buildings, making it easier for lease extensions, reducing the cost to claimants, reducing the cost of enfranchisement claims and providing leaseholders a greater ability to claim the right to manage.
Concrete details on the reforms are still yet to be announced, and as a result those leaseholders whom the reform is intended to benefit have instead been left in limbo without details on what or when enfranchisement legislation will be announced. Similarly, landlords are also left in the dark as to how to prepare for these changes, or whether there is anything they might do to mitigate against the potential impact on their residential property portfolios.
One effect this legislation could create is allowing more properties to be susceptible to a collective enfranchisement claim. Enfranchisement claims are likely to increase, and with this, the market may see a growing number of “white knight” investors, looking to enable leaseholders to more easily make an enfranchisement claim by plugging any funding gap.
Changes to enfranchisement claims might seem low on the list of Government priorities but it is clear that the desire for reform remains. A briefing issued through the House of Commons Library on 22 December 2022 quite clearly highlighted the government’s plans to legislate, with the reference to a Bill in the 2023/24 parliamentary session. In a recent interview in January, the Secretary of State for Levelling Up, Housing and Communities also pledged to bring forward laws to scrap the most “feudal” leaseholds in England “later this calendar year”, albeit that he acknowledged that “it is not easy in legal terms, when you’ve got a tangle of property laws going back hundreds of years”.
It is therefore clear that change is certainly on the horizon in 2023 and we await further formal announcements.
This article first appeared in Prime Resi on 22 February 2023.