What does the King’s Speech mean for the property sector?

Leasehold reform has been on the agenda for reform for several years.  We have reviewed reports, recommendations and government announcements and have reported on promises for reform, but, until now, we have not had any real certainty or detail as to what will, or will not, be introduced or amended.  

Following the King’s Speech this week, whilst perhaps light on detail, we now have more clarity, with key reforms to be set out in a new Leasehold and Freehold Reform Bill and confirmation that the reforms to residential tenancies already set out in the Renters Reform Bill will be progressed.    

Leasehold and Freehold Reform Bill

The headline reforms to be included in a new Leasehold and Freehold Reform Bill include:

• All new houses will be required to be sold as a freehold rather than leasehold interest, subject to what are referred to as “exceptional circumstances”.  The inference is that this provision will apply to only newly built houses, but this is not spelled out, and there is no indication as to what exceptional circumstances may be. 
• The removal of the requirement that a tenant seeking an extended lease or the freehold must have owned his or her property for at least two years.
• Any new extended lease granted under the legislation should be for an additional term of 990 years (rather than an additional 90 years as is provided by the current legislation).
• Proposals to make it “cheaper and easier” for existing leaseholders in houses and flats to extend their lease or buy their freehold, whilst not spelling out in any clear terms what this may mean.
• An increase in the limit on the proportion of non-residential areas that may be present in the case of a collective freehold claim, from 25% to 50%.
• A consultation on a proposal to cap the ground rent payable under existing leases. 
• Provisions aimed at making the process of buying a leasehold property quicker and easier and improving consumer rights.

The removal of the two-year ownership rule and the expansion of the extended lease term to 990 years were both included amongst options suggested by the Law Commission.  Neither reform is therefore likely to prove particularly controversial given that the current legislation already allows a selling tenant to assign the benefit of an extended lease claim to its buyer and it has always been possible for a qualifying tenant to make back-to-back 90-year extension claims.
 

The increase in the limit of the proportion of non-residential areas in a building which may be the subject of a collective freehold claim was not anticipated but has been mooted in previous government briefings. By raising the non-residential limit to 50%, a much greater number of buildings will be susceptible to a collective claim, and is therefore a change likely to prove far contentious amongst landlords.  Similarly, the announcement of the consultation on a proposal to cap the ground rent payable under existing leases looks set to provoke debate.

Renters Reform Bill

The introduction of the Renters Reform Bill in 2023 was described by Government as the “biggest shake-up of the private rental sector for 30 years” reflecting a desire to protect tenants against landlords perceived to be acting unreasonably or unfairly.  Progress implementing the Bill has, to date, been slow, perhaps due in part to the recent acknowledgement from the Government that the current court system would not be able to cope with the anticipated increase in possession proceedings that would follow the implementation of the Bill.  Whilst this may have led some to anticipate that the Bill had fallen to the wayside, the King’s Speech has brought the Bill back into play with separate reforms aimed at speeding up the court process key to its implementation.  
The headline reforms in the Renters Reform Bill include:

• The abolition of section 21 notice evictions, meaning it will no longer be possible for a landlord to evict a tenant simply because it wants to do so, with eviction only possible if one of the statutory grounds can be proved. However, without the investment in the current court system now promised in the King’s Speech, this would have undoubtedly meant that it will be slower and more expensive for landlords to evict problem tenants, such as those with significant arrears or where there has been a significant breach of the tenancy. By way of softening this measure, landlords will be provided with more comprehensive statutory grounds to recover their property where tenants are at fault, but will only be able to evict in what is described as “reasonable circumstances”.
• The introduction of a simplified residential tenancy structure where all tenancies will be continuous periodic tenancies, rather than coming to an end after a fixed period. This is a reform that will be welcomed by tenants wanting the security of a long-term home, with the ability to put down roots in the local community and school system, without the uncertainty of the current regime, but will make it significantly harder for landlords to retain possession of a property unless there is a tenant breach.
• The right for tenants to request the keeping of a pet at the premises. Landlords will be able to refuse consent to such a request if it is reasonable to do so. It is unclear quite what grounds may be argued here, presumably size (of property and pet) and breed will be taken into account. Landlords will be able to recover the cost of any damage caused by a permitted pet or require that pet insurance is put in place at the outset.
• Confirmation that residential landlords will not be required to improve the EPC for rental properties to EPC band C by 2025 as previously proposed.

It remains to be seen if the measures in both Bills outlined above will proceed at the pace clearly envisaged by the government.  Those tasked with implementing the reforms would be well advised to take their time in the drafting. If the proposed reforms are rushed through without proper thought as to the detail and the potential consequences of such measures, we will be in a much worse position, and possibly still without clarity or certainty. If one wanted a precedent for such confusion, one might look to recent experience with the Building Safety Act.

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