Leasehold Reforms in King’s Speech

Claire Gummow, Chartered Legal Executive at Penderlaw Solicitors, outlines the leasehold reforms due to be announced in this week’s King’s Speech. The government has confirmed that the forthcoming King’s Speech will contain a bill to phase out some types of leasehold.

In a recent post on X, formerly known as twitter, housing minister, Rachel Mclean said “Plans to phase out leasehold and restore true home ownership confirmed today as part of the King’s Speech. We will restore true home ownership to millions of people and end the reign of rip off freeholders+ incompetent profiteering management companies.”

5 million properties in UK owned through a leasehold

Around 20% of the housing stock in the UK (equating to around 5 million properties*), is owned through a lease. The bill is due to outline some significant reforms to the current legislation to try and protect those who own their property though a lease. However, it is thought that the ban on leaseholds will concern houses rather than flats. According to government data, 70% of the residential leaseholds in the UK are for flats rather than houses. Therefore it is anticipated that this move will look to deal with the other 30%, leasehold houses.

Complexities with leaseholds

Common problems around leasehold properties include the additional costs associated with them such as ground rents and service charges which may alter during the course of the lease. Leaseholders can also sometimes find themselves having to pay for expensive repairs to common areas of their building, even if they do not agree that the work is necessary.

What is the difference between a leasehold and a freehold?

Someone who owns a property, including the land upon which it is built, is called a freeholder. If you buy a leasehold property, you will own a lease rather than the property itself. The lease gives you the right to use the property for a specified length of time. However, you will still have to get the freeholder’s (often referred to as the landlord) permission for any work or changes you want to make and you may also be liable for service charges and ground rents which are used to maintain communal or common areas such as hallways, stairwells and gardens. When a property is first sold through a lease, the time period of the lease used to be on average between 99 – 125 years. However, recent legislation has increased this to 125 years or more. It may be possible to extend the lease or even buy the freehold, however this may be complex and involve significant legal fees.

What is Ground Rent?

This is a payment due to a landlord which may be specified within a lease. The landlord is not required to provide any service for this fee. Some ground rents may increase throughout the period of the lease, details concerning this must be specified within the lease agreement . The Leasehold Reform (Ground Rent) Act 2022 became law on 30 June 2022 and abolished ground rents on all new leases in England and Wales. This means that the ground rent on all new leases will now be a ‘peppercorn’ or zero.

What is a ‘Peppercorn Rent’?

Historically, a ‘peppercorn’ ground rent often meant a rent that was of nominal or very low value. The Leasehold Reform Act mentioned above defines a peppercorn rent for the first time, which is ‘an annual rent of one peppercorn’. The purpose of peppercorn rent is that it is a legal concept used in situations where legally rent should be paid but where there is no intention or desire to pay or collect it. It is a notional rent. It is thought that the idea of a ‘peppercorn rent’ was first introduced in 16th or early 17th century when the rent really was one single peppercorn a year. Back then peppercorns were regarded as a rare spice.

What is a Service Charge?

A service charge is an annual fee which is payable by leaseholders to the freeholder or landlord and is used to maintain communal or common areas of a leasehold property. It may also cover other costs such as those associated with utilities. The detail of what is covered by the service charge will be included in the lease agreement.

*Data from 2021-22 survey

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