Much Anticipated Freehold and Leasehold Reform Announced in The King’s Speech

QUARTER 4, 2023
It is for many years now that we have listened to Government Ministers declare that they will "tackle the exploitation of millions of homeowners" across the country, and make promises that they will "make it cheaper and easier for leaseholders to purchase their freehold". So it was with much anticipation that people across the property market - landlords, leaseholders and agents alike - listened to the inaugural King's Speech on Tuesday 7th November 2023 and the announcement of the Freehold and Leasehold Reform Bill.
Although this Bill is certainly a milestone and a positive step in the right direction, it is important to remember that no changes have been effected yet. There is a long road ahead before this Bill becomes statute, and we don't yet know whether the Bill has been put on a "fast-track" to get passed before the next General Election.
It is for many years now that we have listened to Government Ministers declare that they will "tackle the exploitation of millions of homeowners" across the country, and make promises that they will "make it cheaper and easier for leaseholders to purchase their freehold". So it was with much anticipation that people across the property market - landlords, leaseholders and agents alike - listened to the inaugural King's Speech on Tuesday 7th November 2023 and the announcement of the Freehold and Leasehold Reform Bill.
Although this Bill is certainly a milestone and a positive step in the right direction, it is important to remember that no changes have been effected yet. There is a long road ahead before this Bill becomes statute, and we don't yet know whether the Bill has been put on a "fast-track" to get passed before the next General Election.
Proposed Changes

So how do the proposed changes affect you as an individual? Well, unfortunately, if you are a Landlord then these changes pose quite significant risk to you. The Bill is designed to make property ownership fairer, cheaper, and all-round easier for leaseholders. And, in turn, this makes our job as agents much easier too!
Some of the proposals are self-explanatory. For example:
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Setting a maximum timescale and fee on the provision of information by the freeholder to the leaseholder required for the sale of a property (LPE1).
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Replacing buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees. We are very proud at Olympus to already be fighting to combat the increasing premiums for our customers by taking no commissions on any services.
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Extending access to redress schemes to freeholders, not just agents, giving leaseholders a chance to challenge poor practices.
However, many of the proposals appear to be rather broad or vague unless you understand the current legislation and how the changes will be better, or the knock-on effects that the proposed changes would result in. We hope that this blog will shed some light on these reforms which you are being told are good for you, but you are not too sure why or how.
Extending Your Lease
Under the existing legislation (the Leasehold Reform Housing and Urban Development Act 1993) leaseholders of flats can extend their leases by an additional 90 years and best practice dictates that this is done when the remaining term on your lease gets down to 80-85 years left. This would mean that after a lease extension, you have 175 years remaining on your lease.
The Leasehold and Freehold Reform Bill promises to give leaseholders the right to extend their leases by 990 years, giving you 1075 years on your lease post-extension. A property with a longer-term left on its lease will have greater value than a property with a short term left (the hypothetical profit that you make by extending your lease is called Marriage Value), which is great news for leaseholders. This will also give you security over your property for generations to come without the hassle and expense of future lease extensions. Alright, this won't necessarily benefit you directly but is certainly something that your children and grandchildren will be grateful for.
In addition, the requirement to have owned your property for more than 2 years before you can benefit from any changes such as lease extensions, has been abolished meaning that more leaseholders can enjoy this security as soon as possible.
Should I Extend Now?
For many people, a lease extension is looming on their horizon. Or possibly you have very recently extended and are wondering what this means for you.
If you have recently extended and now have 175 years remaining on your lease, then there is nothing stopping you from extending again to get 1165 years on your lease. However, this really wouldn't be necessary as there would be no meaningful value added to your flat by having the longer lease term.
If an extension is due in your near future then whether you choose to push on or wait will be entirely dependent on your circumstances. For example:
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If you have 80-82 years left on your lease then you would be wise to push ahead and extend now. It's extremely unlikely that the reforms will be passed before your lease drops below 80 years, at which point you are required to split the marriage value with your freeholder, making it more expensive for you.
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If you have more than 82 years left on your lease then you have time to wait and see if the reforms will make it cheaper for you. But remember that this is not a given and there is a chance that it could become more expensive in line with the trend over the last 5 years.
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If you pay a high ground rent then you should consider waiting. Read on to find out why!

Ground Rent
Further to lease extensions becoming easier, they are also going to become slightly cheaper because there is a proposed cap on ground rent in lease extension calculations. At the moment, when you extend your lease, the ground rent reduces to a peppercorn (£0) from the date of the completed extension. However, you are required to compensate the freeholder for all of the future ground rent payments to the expiration of the original lease term that they will be missing out on. You get a discount rate for paying in bulk and upfront, which is commonly 6%.
So for example, if you had a flat worth £200,000 with a fixed ground rent of £300 per year and you extended your lease with 80 years left on it, the cost of "buying out" the ground rent at the discount rate of 6% would be £5,000.
The proposed reforms promise to cap ground rent payments at 0.1% of the value of the property. So on your £200,000 property, the ground rent is suddenly capped at £200 a year. This is obviously fantastic news for anyone currently paying ground rent that is more than 0.1% of their property value, and in our example above would make the ground rent calculations in the lease extension a third of what they currently are.
Abolition of All Ground Rents

There was speculation prior to the King's Speech that the government intended to ban the collection of ground rent altogether. Last year, The Leasehold Reform (Ground Rent) Act 2022 prevented ground rent from being charged in most new leases, and from being increased in lease extensions of old leases. The abolition of ground rent altogether would transfer huge value from freeholders to leaseholders and is likely to receive extreme opposition from freeholders across the country.
The King's Speech did not confirm this proposal but instead said that the Government will be running a public consultation on the issue of ground rents. And freeholders will invariably argue that their human rights are being infringed upon by abolishing ground rents. They will demonstrate that they have sold leasehold properties at a lower rate than they would have done were they selling the property as a freehold title in order to reflect the value of the ground rent that they would be receiving as future income. And although this may not necessarily be true in all cases, the water will certainly become muddied.
Frustratingly, this does actually pose a risk to leaseholders. If the freeholders are unsuccessful in their dispute then the banning of ground rents is astonishingly good news to you as you would no longer be required to make payments that return no service or benefit to you. But the freeholders do have a case and so the change is unlikely to be passed, and very likely to cause significant delay to the whole Bill. Counterintuitive though it seems, we should hope for the Government to scrap the proposal of banning ground rent entirely and stick to the promise to cap ground rent at 0.1% of the property value during the lease extension process and the enfranchisement process.
Enfranchisement & Right To Manage
Not only will lease extensions become easier and cheaper with these proposed reforms, but so will buying your freehold (Right to Enfranchise) or taking over the management of your building (Right to Manage). The "2 year" rule being abolished would also apply here, which empowers leaseholders to be able to effect change to their management much more quickly.
But more crucially, the Bill proposes changes to the requirements that would qualify you to enfranchise or form an RTM. Namely, the requirement to have no more than 25% of the total floor area as non-residential in order to qualify to buy your freehold or take over the management of your building, is now increasing to no more than 50% of the total floor area. This change will open up these opportunities to the vast majority of leaseholders living in mixed use buildings.
Landlord's Legal Costs
The process will become less expensive to leaseholders as well because you will no longer be required to cover your landlord's legal and professional fees as you are under current legislation. There has been no mention yet of how the costs will be paid but it is likely that the new legislation would require each side to pay their own costs.
And this doesn't just apply to enfranchisement or Right To Manage, but also to lease extensions and challenging poor practice. The latter is particularly good news to all leaseholders. Not everyone wants to take on the responsibility of the management of their building, or perhaps can't afford to buy the freehold, even with a reduction of fees. By opening up redress schemes to freeholders and removing the requirement for leaseholders to cover all legal costs, the Government would be giving leaseholders a much more accessible option to be able to do something about poor management without the need for such drastic measures or costs.
Revolutionising the Leasehold Market
Back in January 2023, Michael Gove seemed to announce the Government's intention to completely abolish the leasehold system. He described it as an "outdated, feudal system that needs to go". It seems instead that rather than changing the system overnight, the Government intend to slowly faze leasehold out. The Leasehold and Freehold Reform Bill proposes banning the creation of any new leasehold houses so that (other than exceptional circumstances) every new house in England and Wales will be freehold from the outset.
However, they have specified houses only, not flats, so it is yet to be seen how they will revolutionise the system and whether they intend to apply this to all properties and begin the move towards a Commonhold system instead.
This Bill seems to be acknowledging that the current system and legislation is archaic, as Michael Gove has said. It seems to finally be setting us on the right path, though there is still a long way to go and many more archaic practices, bound by legislation that need to be addressed in order to free leaseholders from these never-ending costs. For example, we as agents are still bound by an Act created in 1925 (Law of Property Act 1925) to send all correspondence and service charge invoices out by post (unless you opt-in to electronic communication). We also incur irrecoverable fees on credit card payments, which limits the payment options available to leaseholders. And many more.

We are excited to see that the conversation is open, and we will be following the progress of this Bill very closely so that we can guide our clients and customers through the changes. And of course, if you have any questions then please do contact us.
And we'd really appreciate it if you could help us get this information out there by sharing it with your network. Thank you.