Leasehold Reform – Change on the Horizon?

As part of the Government’s levelling-up agenda, the Government introduced legislation in February 2022 that would bring an end to a freeholder being able to charge ground rent on a new ‘voluntary’ residential lease.

The appetite for the Government’s reform in this area emerged following the well-publicised scandal of leasehold houses being sold by developers with onerous and escalating ground rents. In essence, developers were taking two bites of the same cherry by firstly cashing in on the sale of a house and then granting it as a leasehold interest (rather than freehold), which enabled developers to receive significant income during the course of the lease term via the collection of ground rent.

Don’t fall foul of new legislation!

Following the introduction of The Leasehold Reform (Ground Rent) Act 2022 on 30 June 2022, the level of ground rent in any new residential lease that is entered into after that date, cannot be for more than ‘one peppercorn’ (a peppercorn is a metaphor for token rent). Any freeholder caught charging a ground rent of more than a peppercorn may face a fine of up to £30,000 – you have been warned!

What of existing leases?

Unfortunately, for the significant number of leaseholders across the country with spiralling ground rents in their existing leases, the Government has not to date declared its intention to introduce any fresh legislation. This is despite the eye-catching announcement of the (then) Housing Secretary Robert Jenrick on 7 January 2021 when he relayed his Government’s proposals to ‘make it easier and cheaper’ for leaseholders to buy their homes.

As the law currently stands, a leaseholder is able to extend their lease for a peppercorn ground rent, but only for an additional period of 90 years from when the term in the existing lease comes to an end. One of the Government’s proposals is to enable a leaseholder who applies for a lease extension under the statutory route, to extend their lease to a term of 990 years (also for a peppercorn ground rent). With a view to making the process fairer, simpler and less contentious, it was proposed that an online calculator would be introduced with prescribed rates.

What’s next for leaseholders and freeholders?

I anticipate that even if fresh legislation is introduced by the Government, it would have to navigate through a number of barriers in Parliament with the proposed radical reforms to the valuation mechanism likely to be challenged, inevitably leading to even further delay.

It therefore remains uncertain as to how soon any of this might become law and, if implemented, the nature of these reforms are anticipated to be at least 1-3 years away, which in turn may then be dependent on the outcome of the next election.

So, in other words, if you own a property affected by any of these issues, you will most likely still be required to act now as the mere ‘prospect’ of reform is not likely to be something that will resolve any existing issues, and certainly not any time soon!

Bishop & Sewell acts for leaseholder and freeholder clients from its offices in central London.

If you would like to discuss any of the issues raised in this article, please do not hesitate to contact Laurent Vaughan, Senior Associate, Bishop & Sewell Solicitors, on 0207 079 4193 or lvaughan@bishopandsewell.co.uk.

The award-winning Bishop & Sewell Landlord & Tenant team – industry experts on Leasehold Reform legislation, including enfranchisement, lease extensions and Right to Manage.

July 2022