Leasehold reform will be delayed beyond the end of this year, the Government has confirmed.
Details of the Leasehold and Commonhold Reform Bill were expected to be made public before the end of this year.
But yesterday, the Minister of State for Housing and Planning, Matthew Pennycook wrote to Florence Eshalomi, chair of the Housing, Communities and Local Government committee, confirming further delay.
Britain’s 5.2 million leaseholders are hoping that the reforms will make it cheaper and easier for them to extend their lease or club together with neighbours to buy the freehold.
Perhaps more importantly, many leaseholders hope the reforms will reduce ground rents for existing leaseholders to either a peppercorn or £250 per year.
Delayed: Florence Eshalomi MP described the Government’s failure to bring forward the draft legislation before the end of the year, as repeatedly promised, as deeply disappointing
‘Unfortunately, due to unforeseen delays, the Government has not been able to publish the draft Commonhold and Leasehold Reform Bill before the Commons Christmas recess,’ wrote Pennycook.
Pennycook says he expects the Government will be in position to publish the draft Bill for scrutiny in the new year.
He also said in the letter that the Bill will make it easier for existing leaseholders to convert to commonhold and ban the use of leasehold for most new flats.
It will abolish the threat of forfeiture, which is where a freeholder can effectively take back a leaseholder’s home and claim all their equity in doing so.
This can be forced upon leaseholders who fail or refuse to pay their service charges or ground rent.
Pennycook also says the Bill will seek to repeal draconian powers relating to estate charges on housing estates.
Changes may not happen until 2029
In response to Pennycook’s letter, Florence Eshalomi MP wrote: ‘For too many leaseholders, the home ownership dream has turned into a nightmare as they’ve faced soaring ground rent hikes and unreasonable fees.
‘The Government’s failure to bring forward the draft legislation before the end of the year, as repeatedly promised, is deeply disappointing. The delay will cause further uncertainty for long-suffering leaseholders.’
‘The legislation will be technical, and it is vital the Government gets this right so that reforms deliver for leaseholders. However, further delay will make implementing reform during this Parliament [ending in 2029] a real challenge.’
Pennycook made no mention of capping or abolishing ground rents on existing leases in his letter.
This is a particular concern to leaseholders who fear the Government may be backing down on its original promise to cap ground rents on existing leasehold homes.
Matthew Pennycook, the Minister of State for Housing and Planning
Leaseholders pay ground rents to their freeholder for essentially owning the land on which their home is built. There is no service given by freeholders in return.
While ground rents are banned for all new leasehold flats, many flat owners remain at the mercy of these annual costs, some of these rise in line with the retail price index inflation rate and change every 10 or 20 years.
This means someone who bought a flat with a £300 annual ground rent in 2015 would see their ground rent rise to £480 this year. In 10 years it will rise again and they are entirely at the mercy of what happens to inflation between now and then.
Other ground rents double every 10, 20 or 25 years. Under a 10 year clause, that would see someone paying £300 in 2015 double to £600 this year, then in 2035, their ground rent would rise to £1,200 and then to £2,400 in 2045 and so on.
These types of ground rents are red flags to lenders and can render homes unmortgageable and unsellable.
Leasehold campaigners fear that the Government risks creating a two-tier property market for flats by allowing ground rents to continue with older leasehold homes.
‘Buyers are increasingly wary of purchasing flats with monetary ground rents and lenders’ attitudes are only becoming more conservative,’ says Harry Scoffin, campaigner and founder of Free Leaseholders.
‘The Competition and Markets Authority found that monetary ground rents are “neither legally nor commercially necessary”.
‘As such, a charge that provides no benefit or service to the leaseholder should not be in existence in the first place.
‘Housing Minister Matthew Pennycook in opposition pledged support for peppercorning existing ground rents, and not to deliver this would breach the Labour manifesto.’
End leasehold: Campaigner Harry Scoffin (right) says buyers are increasingly wary of purchasing flats with ground rents and lenders’ attitudes are also becoming more conservative
It is possible the Government may be bowing to pressure from freeholders as well as from the Treasury.
The i paper reported earlier this month that the Treasury is now trying to block Labour’s pledge to cap existing ground rents at £250.
Freeholders claim the reforms are unfair because it would harm their financial interests and could lead companies who make their money through owning freehold properties to collapse as well as wipe out investments held in pension funds.
The Treasury fears that scrapping ground rents, or even limiting ground rent to a fixed amount would be retrospective and make Britain appear a country prepared to uproot legal contracts and guarantees.
A spokesperson for the Residential Freehold Association said: ‘Retrospective interference with ground rents risks the widespread insolvency of professional freeholders.
‘That means that a retrospective cap would immediately remove professional oversight from large complex residential buildings.
‘This would lead to delays in remediation progress as insolvent freeholders would be forced to pass the responsibilities under the Building Safety Act 2022 onto leaseholders, with contracts having to be redrawn.
‘This would also retrospectively wipe out investments made by pension funds and institutional investors into the leasehold sector which the Government estimates will cost the exchequer £27bn to compensate for unlawful interference with existing property contracts.
‘Insurance policies would also lapse or default, leaving millions of homes uninsured and immediately unmortgageable.’
Leasehold campaigner Harry Scoffin is covinced that the government is backing down on what was a manifesto commitment.
He says: ‘It shows the Labour government has sided with rent-seekers, middlemen and extortionists over working people.
‘Pennycook’s letter supports reports that Number 10 has caved to lobbyists opposing a cap on ground rents, as it omits any mention of Labour’s manifesto pledge to tackle these exploitative, money-for-nothing charges that are leaving homes unmortgageable and unsellable.
The letter also offered no update on the long-awaited enfranchisement reform consultation.
Earlier this year, the High Court dismissed a significant legal challenge brought by major freeholders against the part of the reforms that would make it cheaper for leaseholders to extend their leases or purchase the freeholds of their buildings.
Scoffin adds: ‘Despite beating the challenge from the freeholder lobby and being free to proceed with the 2024 Act reforms to make lease extensions and freehold purchase cheaper, no update has been provided, even though Pennycook promised one.
‘We fear Labour has shelved this headline policy or will set deferment and capitalisation rates low, pushing up costs for leaseholders and handing a windfall to freeholders.’
