Leasehold reform – what is the latest and how could it affect sellers?
Widespread leasehold reform has been one of the government’s main housing agendas in recent years, as a way of combatting the leasehold scandal that properly emerged in 2017.
While progress was initially slow, in recent times there have been a number of major announcements to help leaseholders.
With many leaseholders struggling to sell their homes because of ground rents and service charges that have been spiralling out of control, the latest news will likely be very welcome for those seeking to get their home sold in a reasonable timeframe.
Here at LeGrys, we take a closer look at the latest state of play.
What is the latest?
The Leasehold Reform (Ground Rent) Act 2022 recently received its Royal Assent, meaning it has passed through Parliament and into law. The provisions will come into effect from June 30 this year, although retirement properties won’t be part of it until April 1 next year.
The Act means that, from June 30, the following key factors will apply.
- If any ground rent is demanded as part of a regulated, new residential long lease, it cannot be for more than one literal peppercorn per year. In effect, most future residential leaseholders will not be faced with financial demands for ground rent.
- Freeholders (landlords) will be banned from charging administration fees for collecting a peppercorn rent, closing a possible loophole where a freeholder (landlord) could try to make a monetary charge via another route.
- Freeholders (landlords) who require a payment of ground rent in contravention of the Act will face penalties of between £500 and £30,000 enforced by way of a civil penalty regime.
- For existing leaseholders entering into voluntary lease extensions after commencement, the extended portion of their lease will be reduced to a peppercorn.
While the effective scrapping of ground rent has been welcomed by campaigners, leaseholders and the industry, there remains frustration that the government is acting more slowly on other aspects of leasehold reform.
Beth Rudolf, director of delivery at the Conveyancing Association, writing in industry title Estate Agent Today, said: “If we were to be completely honest here, this is the tip of the iceberg in terms of the leasehold reforms we are seeking and, dare we say it, the reforms the government has already agreed to in principle but has yet to deliver.”
She continued: “For example, the implementation of the Law Commission Reports in leasehold enfranchisement, Right to Manage, and Commonhold, plus previously announced legislation on Leasehold Reform, reasonable fees and timescales for administrative activities, and managed freehold, which has yet to make the statute book.”
The Conveyancing Association recently wrote to Lord Greenhalgh at the Department for Levelling Up, Housing and Communities – whose role includes focusing on leasehold reform - stressing there was still much to do in this area.
The longer the wait for reform goes on, the more potential there is for damaging consumers and the property industry as a whole.
“While appreciating that this type of legislation can take time, we appear to have been waiting a long time for reform which we had already been led to believe was agreed,” Rudolf added.
“Lord Greenhalgh was kind enough to respond, saying the government was committed to leasehold reform, to making ‘it easier for leaseholders to buy their freeholds, extend their leases or exercise their right to manage buildings’ and also talked about the ongoing work to review greater use of Commonhold with the establishment of the Commonhold Council.”
But the Conveyancing Association and others want the government to go further and faster on leasehold reform to bring about more meaningful and immediate change.
Many of the proposals put forward by the government regarding leasehold appear to be in a state of limbo, with no timescale in place and as a result no real way of knowing when they might be introduced.
While this is understandable, given the current focus on the cost of living crisis and the war in Ukraine, as well as the ongoing recovery from Covid and internal government strife, there are calls for more progress to be made.
How will sellers be affected?
Those leaseholders who are selling their homes, or looking to sell in the future, should find it easier after June 30 now that ground rents have effectively been scrapped. Before, buyers could have been more reticent – knowing that they might be purchasing a house with high or doubling ground rents – but this latest legislation could help in this regard.
However, while leasehold reform is still ongoing, it could remain the case that leaseholds are more difficult to sell than freehold properties because of issues ranging from lease length to high service charges and cladding problems.
The ground rent changes are a start, but campaigners have called for more to be done to lessen the number of leasehold homes that have been rendered virtually unsellable by the leasehold scandal.
For those buying and selling at the same time, a leasehold property with no attached ground rent might be more appealing and move a chain along quicker, but again reservations about purchasing a leasehold property could remain.
Here at LeGrys, we are an independent estate agency with a wealth of experience and can help you to successfully sell your home, whether it’s leasehold or freehold. With offices in the South East and the South West, we are perfectly placed to help you sell your home.
For more information about who we are and what we do, please click here. You can also find out how we will assist you through your selling journey here.