Leaseholders must look ahead to reform as regulation delayed due to ‘flawed’ Tory model

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Long-suffering leasehold flat owners face delays of over a year to laws that could rid them of excessive fees because of mistakes made by the last Tory government.

The “flawed” legislation was written in the run-up to the last election and would have excluded tens of thousands of flat owners in shared ownership schemes.

The new rules would have made buying freeholds cheaper and easier as well as extending leases.

Fixing the mistakes will “take time” said housing minister Mathew Pennycook, without saying how long.

Homes in the UK are generally sold either leasehold or freehold. There is a third means, commonhold, which has similarities with owning a share of a freehold, but it is only growing in popularity slowly.

Freehold is the easiest to understand – you own your home and the land it is on outright.

Leasehold is more complicated. It is sometimes described as owning the home but not the land, but this is incorrect. It is simply a long lease, often when new of 125 or 99 years. As the lease elapses, the property becomes less valuable. Leases can be extended – relatively cheaply if there are more than 80 years left.

At zero, the home becomes the property of the freeholder – the real owner of the land and building – and leases with few years left are extremely expensive to extend and worth little to sell.

Because leaseholders do not own their properties, they can also be subject to charges from the freeholder, including an annual ground rent, but also maintenance of the building and sometimes fees to do fairly commonplace things, such as installing a cat flap. There are few, if any rules around these fees, which can leave leaseholders feeling trapped and frustrated.

Many leasehold properties are flats, and as well as having to deal with greedy freeholders, occupiers have had to deal with dangerous cladding in the wake of the Grenfell tragedy.

These problems led the last government, under housing minister Michael Gove, to push through a law to ease leaseholders’ burdens.

The previous government’s Leasehold and Freehold Reform Act 2024 was passed in the “wash-up” period just before the election.

The Law Commission suggested sweeping reforms to home ownership under leasehold, but only a small number of the suggestions were drafted into the law which, said Mr Pennycook, has made “the process of holistic and coherent leasehold and commonhold reform more challenging.”

He added: “We must correct an omission that would deny tens of thousands of shared ownership leaseholders the right to extend their lease with their direct landlord given that the providers in question do not have sufficiently long leases to grant 990-year extensions.”

“The 2024 Act contains a small number of specific but serious flaws which would prevent certain provisions from operating as intended and that need to be rectified via primary legislation.”

Sebastian O’Kelly of Leasehold Knowledge Partnership said that the update could ultimately be good news for leaseholders since the government reiterated its stance that it would “honour the commitments made in our manifesto and do what is necessary to finally bring the feudal leasehold system to an end.”

“It’s the death knell of leasehold,” he said.

The government’s stance could force homebuilders to stop selling leasehold for new-build homes since buyers are less likely to want to invest in something which the government has earmarked for abolition.

“I would suggest you will see house builders speed this process up,” he said. One developer, retirement home specialist McCarthy Stone, has already said it tentatively supports commonhold, he points out.

“Overall, we are supportive of the use of commonhold and believe it could help build consumer confidence in the housing market as a whole,” McCarthy Stone laywer Hary Jeffries wrote in Inside Housing.

If leasehold is wiped out in new properties, it could energise existing leaseholders into demanding reforms for themselves, he added.

Leaseholders will be keenly watching January’s judicial review on the high payments freeholders charge for lease extensions when there are fewer than 80 years left, known as marriage value.