A guide for conveyancers – how leasehold reform will affect leaseholders

As it stands, the future of the leasehold property market is really quite uncertain. It seems that an increased desire by government to abolish the leasehold system is spurring the introduction of legislative reforms – causing uncertainty for many. What will the future of the leasehold property market look like? We can’t say for definite but here’s the information we have. From a conveyancing perspective, legislative changes are expected to work in favour of leaseholders, before the system is perhaps replaced by something else entirely in the future (most likely at an unknown point after the 2024 General Election). 

Why reform the system now?

In early 2023, Secretary of State for Levelling Up, Housing and Communities, Michael Gove, was quoted stating he wanted to abolish the leasehold system in England and Wales. His suggestion was that it would be replaced with a new “Commonhold” tenure which would allow owners to make joint decisions about their property and fundamentally end the system of Leasehold and its associated costs to leaseholders. The Labour Party have also pledged to abolish this feudal system should they win the 2024 General Election.

With more and more people living in apartment blocks and maisonettes (the most common type of properties to be affected by leasehold), and the demographics for flat owners being the more discerning, younger generation, there is increased appetite to abolish the system. Leasehold is now increasingly regarded as representative of an archaic feudal system which in itself, exploits leaseholders.  

Elsewhere in the UK, Scotland successfully abolished leasehold in 2012, converting remaining leases into outright ownership. But it had been preceded by reform of the feudal system, dating back to as early as 1974. Could this significant shift in property law north of the border provide learnings for how we’ll manage it here? That remains to be seen. 

The legislation 

The current government seems to have reversed its stance on total abolishment and instead is focussing on targeted leasehold reforms. These legislative changes have been introduced to protect leaseholders from sizeable, unexpected fees and charges. 

The first of these is the Leasehold Reform (Ground Rent) Act 2022. This piece of legislation, for the most part, has put an end to ground rent payments for leaseholders – payments made to the owner of the land or wider building, who doesn’t necessarily provide a service for this fee. 

Whilst it only applies to leases taken out on or after June 2022, if a historic lease is surrendered and regranted, it could be caught by the act. 

The second piece of relevant legislation is The Building Safety Act 2022. Whilst this legislation’s main aim is to improve the standards of safety in buildings higher than 18m, there are also some important changes that affect leaseholders. Mainly that those with a qualifying lease, are now protected from paying service charges related to cladding defects, as well as other protections against charges for defects that don’t relate to cladding. The Building Safety Act also establishes a more robust framework for those responsible for such buildings. 

Protecting Leaseholders 

Whilst the legislative changes above offer some degree of protection to leaseholders, uncertainty is still rife and those taking on leases could face a variety of challenges and risk financial loss. It is possible that, in the not-so-distant future, leasehold will be replaced by something more like the “Commonhold” tenure suggested by Michael Gove, but that is in no way certain. 

Our Title Indemnity insurance products protects financial losses that could be incurred in a number of scenarios – a safety net given the uncertainty surrounding the leasehold system. The protections offered vary by policy but generally speaking will protect against a number of expensive and time-consuming issues related to historic ground rents, absent landlords, adverse difference in the market value of a property, and cost of works. 

For further details, we would be happy to speak directly on 0800 524 4235.

And for any further questions or information about our Conveyancing policies please email our Title Indemnity Business Development Manager, Darren Parfitt.