Leasehold reforms: Dead in the water, expect little change.

There aren't many things that I have championed through my blogs, but the proposed leasehold reforms in 2020 were something I championed. My first-ever blog was that leasehold reforms were good news for 5 million leaseholders in England and Wales. I championed these reforms so much because of my experience with leasehold properties. I once owned a leasehold flat in Kent. I had very little knowledge of leaseholds back then, but my experience meant that I have never bought a property that has been leasehold since.

Anyone who has owned a leasehold property in the UK will know how frustrating the process of owning a leasehold can be. A leasehold is a form of homeownership where the ultimate owner is the freeholder. When a leaseholder buys a house or a flat, they only purchase the right to live in that property for a set amount of time, i.e., 99 years, 125 years, etc. They pay the freeholder ground rent, which in most cases will double every ten years, and service charge for maintenance of common areas, with the leaseholder having very little control over this. 

The managing agent appointed by the freeholder charges extortionate fees when it comes to selling your property. They charge up to £500 to provide leasehold information packs known as LPE1 and LPE2, which are essential for the sale of the house or flat. This also delays the sale by 6 to 12 weeks.

Once there are 80 years or fewer remaining, the property is said to have a "short lease" and, to stay in the property or sell it, the leaseholder typically faces paying tens of thousands of pounds to the freeholder. This third-party landlord owns the building and land. 

All of this was proposed to be scrapped, and fees capped at no more than £250 for providing vital information for the property sale. In its own words, the government wanted to change the outdated "feudal system". But not anymore, it would seem.  

What went wrong?

Excessive lobbying from pension funds, some of which have invested billions into buying freeholds for blocks of flats, has led to the government changing its mind on some of these key changes. A key part of the Housing Secretary's plan was to reduce all ground rents to a zero ("peppercorn") rate, which he hoped would incentivise landlords to sell the freehold to leaseholders, leading to a phasing-out of the system. 

The plan was to add the provision to the bill after a consultation, which closed in January. This would have gone further than the cap on ground rents for new homes, introduced in 2022, and reforms in 1993 to enable leaseholders to reduce their ground rent to a peppercorn when extending their lease by 90 years.

However, the proposal was quietly abandoned after Michael Gove and officials at the Department for Levelling Up, Housing and Communities met fierce resistance from the Treasury, according to the Sunday Times. 

The Treasury has been warned that pressing ahead with Gove's plans could wipe out between £15 billion and £40 billion of investment, which could significantly affect individual pensioners. Pension funds are big investors in housing, and ministers are also concerned about the knock-on effects of investment in new developments.

The significant exposure of the changes to the pension funds would have caused concern for the government, but critics argue the impact has been greatly exaggerated. The government has all but abandoned most of the changes it consulted on in the leasehold reform bill.

It begs the question of why the government began consultation on the leasehold reforms, giving hope to millions of leaseholders only to make little or no change. The Conservative Party's manifesto in 2019 pledged to restrict ground rents to a peppercorn, and it is very likely that the government will fall short of its manifesto commitment. This isn't a surprise, given that the government has made little to no meaningful change over its 14-year tenure.