What is the Leasehold and Commonhold reform bill?

As expected, the Leasehold and Commonhold Reform Bill was one of the centerpieces of the legislative programme unveiled in the King’s speech, which officially opened a new session of Parliament for the newly elected Labour government on Wednesday 17^th July.

The reasoning behind the Bill is to provide homeowners with greater rights, powers and protections over their homes by implementing the provisions of the Leasehold and Freehold Reform Act 2024.

Longer term, the Bill will eventually look to phase out leasehold interests and focus on commonhold, a tenure that has existed in the statute books as an alternative to leasehold since 2022 but has not seen much success.

The Bill will do this by modernising the current legal framework and restricting the sale of new leasehold flats.

How will the Leasehold and Commonhold Reform Bill enhance leaseholder rights?

The bill will enhance the rights of current leaseholders by providing them with a wider range of rights and protections, including:

• Reducing costs for leaseholders: The aim is to limit charges leaseholders can incur, such as service charge
• Right to manage: providing more rights to leaseholders to manage their own properties by simplifying the legal processes.
• Removing the threat of forfeiture: removing the ability of landlords to forfeit the lease for over small arrears. Many leaseholders are threatened with forfeiture and the loss of their home for low outstanding sums (as little as £350, or less if outstanding for more than three years).

How will the Leasehold and Commonhold Reform Bill change the commonhold system?

The Bill will eventually look to revise the current legal framework to encourage the commonhold system, which will offer benefits to homeowners over the previous leasehold system, such as:

• Freehold ownership: Under commonhold ownership, people will own their properties outright and will have a share in the common areas, compared to the multiple agreements often seen with leasehold properties.
• Ground rent abolishment: Commonhold properties will not have ground rents. The Government estimates that 86 per cent of leaseholders pay a ground rent, averaging almost £300 per year in England. Ground rent contracts that rapidly escalate can become unaffordable over time for leaseholders. A leasehold property with an escalating ground rent may struggle to sell, even if priced correctly.

We do not currently have any insight into how the Government intends to implement the modernisation of the current legal framework. However, we expect there to be many changes implemented in the coming years that will see a move away from the current leasehold system.

If you have any questions about how the proposed bill may affect you, please feel free to get in touch with one of our real estate experts.