Leasehold and Commonhold Reform: Is the end in sight for clarification on reform?

After a much-anticipated wait, we have finally received an indication of the likely timetable in relation to the remaining provisions under the Leasehold and Freehold Reform Act (“LAFRA”). The Government also intends to make a start on the tall task of introducing the Leasehold and Commonhold Reform Bill. Matthew Pennycook, the Minister of State for Housing and Planning released a statement on 21 November 2024 updating the House of Commons on the next steps the Labour Government intends to take in relation to the leasehold reforms it pledged in its manifesto.

Leasehold and Freehold Reform Act 2024

Some of the changes regarding rentcharges are already in place and the amendments to the Building Safety Act 2022 (as set out in Part 8 of LAFRA) are now in force. However, the remaining provisions are yet to be implemented by secondary legislation.

Mr Pennycook commenced his update by criticising the haste in which LAFRA was pushed through by the last Government and how the current Government’s task of implementing the leasehold reforms has become more challenging as a result.

Therefore, whilst Mr Pennycook pledges that the current Government will “continue to work at pace” to bring in the required legislation to implement the remaining parts of LAFRA, he highlights that time will be necessary to ensure that any amendments required to rectify earlier “flaws” with the Act are dealt with.

However, whilst Mr Pennycook outlines that more time is needed, many stakeholders and leaseholders will be pleased to note that a provisional sequence of events has been provided which sets out when the Government intends to bring in and / or consult further on the provisions under LAFRA in 2025:

1. The Government’s first port of call in January 2025 is to remove the 2-year period that leaseholders currently must wait after purchasing their property before exercising rights to extend their lease or buy their freehold.
2. In spring 2025, the Right to Manage provisions under LAFRA will be brought into force. As detailed in Part 3 of our update on LAFRA (which can be found here, LAFRA amends the threshold for premises excluded from the RTM due to non-residential use from 25% to 50%. This will increase the number of buildings eligible for RTM in the future. In addition, there are also changes to the cost provisions regarding the RTM, meaning neither the RTM company nor their members would be liable for the landlord’s costs of dealing with a claim.
3. As detailed in Part 2 of LAFRA (our bulletin on which can be found here, LAFRA will bring in several changes making it easier and cheaper for leaseholders to extend their leases or acquire the freehold of their building. The Government will therefore, in summer 2025, also consult on the valuation rates used to calculate the cost of enfranchisement premiums. Secondary legislation will then be needed to flesh out the detail needed under Part 2.
4. In discussing a series of consultations proposed to discuss the changes to be implemented under LAFRA, Mr Pennycook firstly addresses the concerns around the cost-of-living crisis and costs being passed onto leaseholders. He confirmed that the Government will consult on how to introduce the provisions banning insurance commissions, as detailed in Part 4 (details of which can be found in our bulletin on the additions brought in under Part 4). Whilst there is no timetable given as to when this process will commence, his statement refers to going out to consultation ‘very shortly’.
5. In 2025, the Government will consult on services charges and legal costs (also detailed under Part 4). The proposed changes, once introduced, are designed to allow leaseholders to challenge services charges, in a much easier and straightforward way.
6. Another key area of focus is the Government’s continued commitment to protecting residential freeholders on private and mixed-tenure housing estates from unfair estate management charges, as detailed under Part 5 of LAFRA. The Government will therefore undertake a further consultation in 2025 on the implementation of Part 5 which is designed to provide significant protection for freehold owners in relation to these charges. These provisions will also allow homeowners who pay estate management charges to challenge the reasonableness of these charges at the First Tier-Tribunal (“FTT”) and go to the FTT to appoint a substitute manager.
7. The Government will also be working with the Welsh Assembly to bring about the required reforms across England and Wales.

Leasehold and Commonhold Reform Bill

Whilst it is pleasing to note that the Government is committed to implementing LAFRA as a priority in 2025, Mr Pennycook draws attention to the fact that the provisions under LAFRA do not implement much of the Law Commission’s recommendations regarding commonhold, enfranchisement and the right to manage. They also want to tackle poor service from managing agents, rising ground rents, the threat of forfeiture and the issues with private and mixed-tenure estates.

Therefore, Mr Pennycook has confirmed the Government’s intention to address the omitted recommendations within the Leasehold and Commonhold Reform Bill (“the Bill”), which the Government intends to publish in the second half of 2025.

The Bill will include focus on “reinvigorating” the push to move from leasehold to commonhold as the default tenure by publishing a White Paper on the suggested commonhold reforms early next year. The Government will consult on the best approach to banning new leasehold flats. This is an extension of the proposed reforms to ban leasehold houses detailed under Part 1 of LAFRA (our bulletin on which can be found here).

The Bill will also demonstrate the Government’s pledge to reform the existing leasehold system. In particular:

• The Government will look to tackle, what they consider to be “unregulated and unaffordable ground rents”, as detailed within its manifesto.
• The Bill will also aim remove the threat of forfeiture as a means of ensuring compliance with a lease agreement.
• The Government will also consult on reforming the Section 20 consultation procedure required for major works.
• The Government want to strengthen regulation to address poor service from managing agents through consultation. They will therefore re-consider Lord Best’s 2019 report on regulating the property managing agent sector.

Finally, the Government are determined to end ‘fleecehold’ estates i.e. where homeowners on new-build estates are locked into private maintenance contracts for communal areas. The Government will consult next year on the options to reduce current estate management arrangements.

Summary

Ultimately, the Government’s determination to bring clarity to the provisions under LAFRA are welcomed. However, despite outlining a general timetable as to when we can expect to receive greater detail under LAFRA, much work is needed to reform the leasehold sector and is there is still no clear end in sight.

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