What does the future hold for leasehold reform?

Leasehold reforms are moving at a glacial pace. Despite things looking promising with the Leasehold Reform (Ground Rent) Act coming into force last June and an update from Michael Gove in January this year stating that he wished to abolish the leasehold system in England and Wales, the government appears to be adopting a policy of radio silence on the matter. So what could leasehold reform look like?

Related topics:  government,  reform,  leasehold
Property | Reporter
6th July 2023
Question 901
"We are in a state of limbo until the Government can clarify its plans, which makes it difficult both for practitioners to advise clients and for leaseholders to decide what to do"

Experts from the Association of Leasehold Enfranchisement Practitioners have set out their predictions for the next phase of leasehold reform, with legislation now expected to be introduced in the next parliamentary session.

In February 2023, Housing Secretary Michael Gove announced the Government’s intention to abolish leasehold altogether, stating that he wanted to introduce legislation in the final parliamentary session.

ALEP members have expressed scepticism that the abolition of leasehold can be achieved without significant further work being done, including greater efforts to make commonhold a viable alternative to leasehold.

Mark Chick, Director at ALEP and Senior Partner at law firm Bishop & Sewell LLP, said: “Legal and valuation experts alike have little belief that the leasehold system will be abolished any time soon. Meanwhile, there are numerous issues raised by the scale of what would be involved in wholesale reform of the leasehold system, although any reforming act would be massive and would take up a large tract of parliamentary time.”

What changes could the Government introduce next?

990-year lease terms

Leaseholders currently have a statutory right to extend their lease by an additional 90 years and remove the ground rent under The Leasehold Reform, Housing and Urban Development Act 1993. The Government has previously announced plans to enable all leaseholders with the right to extend their lease to do so by 990 years, effectively removing the need to extend the lease again in the future.

Abolition of marriage value

It is likely the Government will take some steps to deliver on its commitment to abolish marriage value, for example, by banning marriage value for new leases, or setting a date in the future for such a ban to take effect. Any reforms are likely to face challenges from freeholders, and will probably focus on new leases going forwards rather than making retrospective alterations to existing leases, which would be legally problematic.

Changing the 25% non-residential rule

There are changes that could be made to the legislation to make the enfranchisement process easier without changing the valuation basis, such as extending the right to enfranchise to more leaseholders. Under existing legislation, if more than 25% of the internal floor area of a building is used for non-residential purposes (e.g. shops or offices) then the building will not qualify for collective enfranchisement under existing legislation. Reforms could have the benefit of bringing a greater availability of rights to residents of this type of building.

However, any change to the leasehold system that affects the value of freeholders’ investments is likely to face challenges in the courts, and there may be concern from mortgage lenders before they are comfortable with the new forms of tenure and that practitioners are fully familiar with the legislation. Human Rights legislation could also be used as the basis for a legal challenge from freeholders whose investments will be impacted negatively.

Mark continued: “We are in a state of limbo until the Government can clarify its plans, which makes it difficult both for practitioners to advise clients and for leaseholders to decide what to do.

"Practitioners can only present clients with the information available at the time, advise them on the possible effects, and then let the client decide how to proceed, as each situation is unique and requires individually tailored advice.”

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