Government publishes plans to reform leasehold property in England & Wales

Duncan McGregor, Partner

The Ministry of Housing Communities & Local Government published [yesterday] the Government’s proposals to make major changes to leasehold ownership in England and Wales. The draft Bill aims to move residential flat ownership away from the leasehold system by requiring the adoption of an improved commonhold tenure for the sale of new flats as well as capping existing ground rents. The proposals can be summarised as follows:

• Commonhold reform – the Bill repeals and replaces the commonhold provisions originally introduced in the 2002 Commonhold and Leasehold Reform Act and will seek to enable mixed‑use or multi‑block commonhold schemes, simplify registration, streamline dispute resolution, improve the commonhold community statement and create a roadmap for existing leasehold blocks to convert to commonhold ownership
• A cap on existing ground rents – ground rents for leases granted after the Leasehold Reform (Ground Rent) Act 2022 was implemented can only reserve the ground rent of a peppercorn, but this did not deal with existing leases.  Expected to come into force in late 2028, and leases granted prior to the 2022 Act coming into force will be capped at £250 per annum, reducing to a peppercorn after 40 years
• A ban on the sale of most new leasehold flats – the Bill proposes a statutory ban on the granting or assigning of most new long residential leasehold flats, with some limited exceptions
• The abolition of the landlord’s right to forfeit the lease – forfeiture is to be abolished and replaced, for certain breaches of covenant, with a statutory enforcement scheme allowing a court to order proportionate remedies; for example remedial orders or orders for sale
• Estate rent charge reform – Sections 121 and 122 of the Law of Property Act 1925, which currently allow for disproportionate remedies for non-payment, will be repealed, and specific notices will be required before enforcing rent charge arrears.

We anticipate being able to provide a more detailed commentary in due course, looking at some of the issues this Bill seeks to address as well as the potential consequences for landlords and investors arising out of these changes, particularly the reduction and eventual cessation of the collection of ground rent from residential leasehold properties.