29 May 2024

Leasehold reforms come into force: what they mean for homeowners

New protections for leaseholders, but cap on ground rents dropped

Long-awaited reforms to the leasehold system in England and Wales have become law but without the proposed cap on ground rents.

The Leasehold and Freehold Reform Bill was voted through last Friday, just before the shutdown of Parliament ahead of the upcoming general election.

Here, Which? explains what was included (and omitted) from the Bill and what might be next for leaseholders.

The problems with leasehold

Leasehold is a form of home ownership where you have the right to live in a property for a set number of years (the lease).

However, the land your property sits on is owned by someone else (the freeholder), to whom you must pay an annual fee called ground rent.

Flats are usually sold as leasehold, but around 2010 a growing trend emerged of developers selling new-build houses as leasehold too, resulting in a range of problems for buyers.

Since 2018, Which? has reported extensively on issues facing leaseholders trapped in unsellable homes. These included ground rent 'doubling' clauses, punitive service charges, 'permission' fees to make minor changes to their homes, and difficulties extending leases and buying freeholds.

Find out more: Which? investigates the leasehold scandal

New reforms come into force

The government has long pledged to overhaul the leasehold system, and included plans to ban new houses being sold as leasehold and restrict ground rents in its 2019 general election manifesto.

The new Leasehold and Freehold Reform Act provides a series of new protections, including the following:

It will be made easier and cheaper for leaseholders to buy their freehold. Leaseholders will no longer need to live in a property for two years before they can extend their lease or buy the freehold.
The standard lease extension term will be increased to 990 years, from 50 years (houses) or 90 years (flats).
Leaseholders will be given greater transparency about service charges, with freeholders and managing agents required to issue Bills in a standardised format.
It will be made easier for leaseholders to challenge unreasonable charges at a tribunal.
It will be made easier and cheaper for leaseholders to take over the management of their building.

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Ground rent cap dropped from Bill

While these measures mark a step forward in leasehold reform, there is a notable omission in the new rules - the proposed cap on ground rents.

The government initially planned to cap ground rents at a nominal fee, but faced significant opposition from freehold owners and investors.

In early 2024, the proposed cap was raised to £250 a year for up to 20 years before the cap was dropped completely in the hope of pushing the bill through before Parliament was shut down for the election.

Will leasehold be scrapped completely?

Campaigners have long fought for the 'feudal' leasehold tenure to be scrapped entirely, but these new reforms stop well short of doing this.

However, the new laws do include the long-promised ban on houses being sold as leasehold except for in 'exceptional circumstances'.

Campaigning groups say they will continue to push for leasehold to also be banned on all new flats.

One proposal is to introduce a 'commonhold' system, which would involve people who own flats jointly taking responsibility for the management of their building without the need for a freeholder or lease. The government set up a 'Commonhold Council' in 2021 to advise on the possible implementation of a commonhold system.

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Leasehold reforms: a timeline

2017

June: the government consults on banning new houses being sold as leasehold

2018

June: Which? publishes its investigation into the leasehold scandal
September: Report claims nine in 10 leaseholders regret their purchase
October: Government launches a consultation on capping ground rents

2019

March: Select committee calls for an overhaul of the leasehold system

2020

February: Competition and Markets Authority (CMA) says it will investigate leasehold mis-selling
July: Law Commission recommends 900-year lease extensions be made standard
September: CMA launches action against some developers over mis-selling

2021

January: Government pledges to give leaseholders the right to extend their leases by 990 years
June: CMA secures ground rent concessions from developers and freehold owners
December: Taylor Wimpey agrees to remove ground rent doubling clauses