Government commits to reforms to ‘end feudal leasehold system’

These changes, together with strengthened regulation of managing agents, will ensure existing leaseholders are better protected, government said.

Mr Pennycook said: “Millions of homeowners across the country will remember with fondness the sense of satisfaction, pride and security they felt when purchasing their own home. Yet, for far too many leaseholders, the reality of homeownership has fallen woefully short of the dream.  

“The government is determined to honour the commitments made in our manifesto, and I am pleased today to set out the steps we will take to provide relief to those currently subject to unfair and unreasonable practices, and to progress the wider set of reforms necessary to end the feudal leasehold system for good.” 

Consultations

In a statement, Mr Pennycook said government intends to commence LAFRA’s provision to remove the ‘two-year rule’ in January next year. This will mean that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold, giving more leaseholders control over their properties from the outset.

In spring, a package of measures will be introduced to expand access and reform the cost rules and voting rights where leaseholders claim the ‘Right to Manage’. This means more homeowners in mixed-use buildings can take over management from their freeholders, and leaseholders making claims will no longer have to pay their freeholder’s costs in most cases.  

Mr Pennycook said government will go out to consultation “very shortly” on the detail of the act’s ban on buildings insurance remuneration. This includes commissions for landlords, property managing agents and freeholders being charged through the service charge and their replacement with transparent and fair fees.

He added that next year government will look to consult on the act’s provisions on service charges and on legal costs, bringing these measures into force “as quickly as possible thereafter”.

Once implemented, leaseholders will be able to more easily challenge service charges they consider “unreasonable” and landlords will be required to apply to the relevant court or tribunal for approval before they can pass legal costs from such challenges back to leaseholders, Mr Pennycook said.

The act includes measures that will make it cheaper for leaseholders to enfranchise, meaning buying their freehold or extending their lease, giving them security over their property in the long term. Next summer, government will consult on the valuation rates used to calculate the cost of enfranchisement premiums.

Mr Pennycook said parliament will then need to approve the secondary legislation that sets out the detail, as well as fixing the act’s “serious flaws” in further primary legislation, before implementing the package.

Further leasehold legislation

Mr Pennycook said that while the government must fix LAFRA and implement its provisions “as soon as possible”, the act does not go far enough.

He said: “As part of our commitment to finally bring the feudal leasehold system to an end in this parliament, the government are determined to take action to address Law Commission recommendations omitted from the 2024 act, to resolve a range of problems that legislation failed to grapple with, and to enact key pledges in our manifesto that it did not even engage with, such as making commonhold the default tenure.”

Mr Pennycook said government intends to publish its new Draft Leasehold and Commonhold Reform Bill in the second half of next year.

“A central focus of the bill will be reinvigorating commonhold through the introduction of a comprehensive new legal framework,” he said.

“To set out our thinking in advance of the bill and invite consultation and discussion about how we finally transition away from leasehold, we will publish a white paper on reforms to commonhold early next year.

“Alongside setting out our plans for a comprehensive new legal framework for commonhold, we will take decisive first steps to making commonhold the default tenure by the end of the parliament. To that end, we will consult next year on the best approach to banning new leasehold flats so this can work effectively alongside a robust ban on leasehold houses.”

Mr Pennycook said government will seek input from industry and consumers on other fundamental points such as potential exemptions for legitimate use and how to minimise disruption to housing supply. Government will also engage on the conversion of existing flats to commonhold, he said.

Mr Pennycook added that government also aims to tackle unregulated and unaffordable ground rents through the legislation.

“Finally, we are determined to end the injustice of ‘fleecehold’ entirely and we will consult next year on legislative and policy options to reduce the prevalence of private estate management arrangements, which are the root cause of the problems experienced by many residential freeholders,” he said.