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Leasehold Bill – What’s in it and what’s not – Mortgage Strategy

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The Leasehold and Freehold Reform Act was passed on Friday under fast-track procedure as part of the “clean-up” effort designed to enable quick passage of the legislation before the July 4 election.

The debate in the House of Lords lasted 11 minutes and passed 67 amendments to a lengthy bill containing 124 clauses.

Essentially, the law is intended to make it cheaper and easier for people to renew their leases, purchase their property and take over the management of their buildings.

British Housing and Planning Minister Lee Rowley described the law as “the most consequential housing reform in decades”.

However, other representatives of the real estate industry point out that a bill passed at such speed will inevitably ignore controversial measures and could have a number of unintended consequences.

Jonathan Frankel, partner at Cavendish Legal Group, said: “Parliament rushed it through and watered it down.”

Frankel adds: “Although discussions on lease reform began in 2017, the process was slow.

“One of [housing secretary] Michael Gove's clear aim was always that the basic pension should be a thing of the past – he promised to reduce it to a minimum.” Here are the main measures in the bill:

What is in the lease invoice:

  • Increases the standard lease renewal term to 990 years for houses and apartments – up from 50 years for houses and 90 years for apartments
  • Sets a maximum time and fee for information on buying and selling homes for leasehold properties
  • Provides tenants with greater transparency on their service charges by having owners or managers issue invoices in a standardized format
  • Facilitates and reduces the cost of taking over the management of the building by the tenant, as he can appoint his own manager
  • Expands access to claims settlement systems for tenants to challenge bad practices
  • Gives homeowners on private and mixed-use properties greater opportunity to challenge the fees they pay
  • Prohibition of the sale of new houses with leasehold, so that “except in exceptional circumstances” every new house in England and Wales is freehold from the outset
  • The requirement that a new tenant must have owned his or her home for two years before renewing his or her lease or acquiring ownership will be removed.
  • Raises the 'non-residential' threshold to allow tenants in buildings that are 50% non-residential to acquire their freehold. This threshold increases from 25%.

What is not included in the lease agreement:

  • The ground rent will remain the same for existing tenants – it has not been reduced to a “peppercorn” rate or capped at £250 as the Government has suggested in recent months.
  • No ban on terminating long-term leases, which can allow an owner to reclaim a flat for a debt of £350

Although the bill has now been passed, key measures will not come into force for two years as the new government still needs to set various tax rates and thresholds.

Linz Darlington, managing director of Homehold, said: “Among the changes included but delayed are the ban on leasehold homes and the abolition of matrimonial value, which could make it cheaper for leaseholders with less than 80 years remaining on their lease to renew their leases.

“Instead, we must wait for additional legislation to be passed to fill the gaps – and the impact assessment of the bill suggests that it will not come into force until 2026.”

“This secondary legislation – which sets the key rates used to calculate lease extension and purchase prices for freehold properties – will also potentially make lease extensions more expensive for those with lease terms of over 80 years and lower ground rents.”

This law does not represent an end but a beginning, because there is still a lot to be done between tenants and owners.

Eleanor Bateman, campaigns and public relations officer for the National Residential Landlords Association, said: “Whether this makes it 'cheaper' to renew a lease will depend in part on secondary legislation that will be passed after the election.”

Bateman added: “We are particularly concerned about the impact on leaseholders if ground rent reforms lead to landlord insolvency and we call on the next government, whoever it may be, to resolve the problem of unqualified leaseholders before implementation.”

Ami CEO Robert Sinclair stressed: “In order to get the law through, it was weakened more than anyone would have wanted. It will make a difference, but it will do little to change the actual conditions under which things work.”

“There remain concerns about the leases, service clauses and cost escalation clauses which need to be addressed and may be referred to the Competition and Markets Authority.”