Expert comment: What does the Leasehold and Freehold Reform Bill mean for the UK homeowner?

Following swift advancement through the House of Commons and a recent second reading in the House of Lords, the proposed Leasehold and Freehold Reform Bill looks set to receive Royal Assent and come into force this summer. The Bill proposes some refreshing legislative reforms aimed at enhancing the rights of leaseholders across England. The most prominent areas targeted centre around leasehold extensions and the abandonment of ‘marriage value’.

Under current provisions, leaseholder’s can extend their leasehold by 90 years for a leasehold flat and 50 years for a leasehold house. Furthermore, flat leaseholders may only apply for the extension once they have had two years of proprietorship. Bringing the two property types into alignment, sections 32 and 33 of the draft Bill intend to permit qualifying leaseholders the ability to extend their leasehold by 990 years, with the continued ground rent being payable at peppercorn rate once the premium for the extension has been paid. The Bill also proposes to eliminate the requirement of having occupied the leasehold for at least two years before requesting the extension. This will be a welcome reassurance to leaseholders, who without the extension, face the potential for a loss in value of their property when they come to sell.

The promising draft bill also aims to make purchasing the freehold more affordable for leaseholders. Under current legislation, leaseholders wishing to jointly purchase the freehold of their property are subject to a valuation method that incorporates a ‘marriage value’ payment (a percentage of the estimate of the increased value of the property by the leasehold and freehold coming into common proprietorship) and a calculation which compensates the current freeholder for the loss of future ground rent. This method has previously made the possibility of purchasing the freehold difficult for some leaseholders. However, the draft Bill looks to eliminate the ‘marriage value’ payment altogether and limit the calculation for the loss of the future ground rent to 0.1% of the freehold’s value, making the joint purchase of the freehold, in most cases, more accessible.

Together with these main proposals, upon Royal Assent, leaseholders could also expect to benefit from greater transparency around service charges and building insurance costs and even a capping of existing ground rent charges. It's clear that the key amendments proposed under the Bill are long overdue and will provide greater stability and reassurance to leaseholders.