In this blog we delve into the transformative Leasehold and Freehold Reform Bill. This significant legislation promises to reshape the landscape for leaseholders by making it simpler and more affordable to extend leases or acquire freeholds. With a focus on extending the standard lease term from 90 to an impressive 990 years and slashing ground rents to zero, these reforms are set to empower homeowners with greater control over their properties. We’ll unpack all the essential details, from the elimination of the two-year ownership prerequisite to the introduction of stringent measures ensuring transparency in service charges and the prohibition of new leasehold houses. Join us as we explore how these changes could benefit you and potentially revolutionize the property market.
Leasehold Reform
The Leasehold and Freehold Reform Bill aims to make it easier and cheaper for existing leaseholders to extend their lease or buy the freehold. Key changes include:
- Increasing the standard lease extension term from 90 to 990 years with ground rent reduced to zero.
- Removing the requirement to have owned the property for 2 years before benefiting from these changes.
- Setting maximum times and fees for providing leasehold information during sales.
- Requiring transparency over service charges and replacing insurance commissions with admin fees.
- Banning new leasehold houses in England (but not flats).
Ground Rent Consultation
The Ground Rent Consultation, titled “Modern leasehold: restricting ground rents for existing leases”, was launched by the government alongside the Leasehold and Freehold Reform Bill in November 2023. Here are the key details:
Purpose
The consultation seeks views on options to retrospectively restrict ground rents for existing residential leaseholders in England and Wales.[1][4] This aims to address issues with rapidly escalating ground rents that can make leases unsaleable or unmortgageable.
Options Proposed
The consultation outlines five potential options for restricting existing ground rents:
- Capping at a peppercorn (removing financial ground rent obligations)
- Capping at an absolute maximum value
- Capping at a percentage of the property value (e.g. 0.1%)
- Limiting to the original ground rent amount when the lease was granted
- Freezing ground rents at current levels
Key Considerations
The government has indicated a preference for Option 1 (peppercorn cap), but this may face legal challenges from freeholders over property rights.
No compensation is expected for freeholders who lose ground rent income streams.
- Potential unintended consequences like making some leases temporarily unsaleable/unmortgageable if freeholds are disclaimed due to lost value.
- Questions around transitional periods, periodic uprating of caps, and exemptions for certain property types.
The consultation closed on January 17, 2024, with the government’s response and final decision on ground rent reforms still pending as of March 2024. The chosen option is expected to be legislated through amendments to the Leasehold Reform Bill.
Conveyancing Process
Conveyancing is the legal process of transferring ownership of a property from the seller to the buyer. Here are the key steps involved in the conveyancing process:
Instructing a Conveyancer
The first step is for the buyer to appoint a conveyancing solicitor or licensed conveyancer to handle the legal aspects of the purchase. This should be done as soon as an offer is accepted on the property.
Receiving Contract Pack
The seller’s conveyancer will send the buyer’s conveyancer the contract pack, which includes the draft contract, property information forms, title deeds, and lease details (if leasehold). The buyer should review these carefully.
Conveyancing Searches
The buyer’s conveyancer will conduct various searches, such as local authority searches, to check for any issues affecting the property (e.g. planning constraints, rights of way). Additional searches may be required depending on the property.
Negotiating Contract
The buyer’s conveyancer will negotiate the terms of the contract with the seller’s conveyancer, agreeing on completion date, fixtures/fittings included, any repairs needed based on survey findings, etc.
Exchanging Contracts
Once negotiations are complete, the buyer and seller will exchange signed contracts, at which point the buyer pays the deposit (usually 10%) and the transaction becomes legally binding. A completion date is set.
Completion
On the agreed completion date, the remaining balance is transferred from the buyer to the seller. The seller must vacate, and the buyer receives the keys, officially taking ownership of the property. The deeds are transferred and registered with the Land Registry.
Additional steps are required for leasehold properties, such as obtaining a leasehold pack and potentially extending the lease. The conveyancing process can take 12-16 weeks on average from instruction to completion.
