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UK Plan to Wind Up Leasehold Homes Includes Houses But Not Flats - BLOOMBERG

NOVEMBER 07, 2023

(Bloomberg) -- The Conservative Party’s plan to phase out Britain’s “broken” leasehold system will ban the creation of new leasehold houses, but not flats.

King Charles III outlined the agenda of Rishi Sunak’s government in the King’s Speech surrounded by lawmakers in the House of Lords on Tuesday. One reform, drawn up by Leveling Up Secretary Michael Gove, will ensure all new houses in England and Wales are sold as freehold properties as part of sweeping reforms to phase out the leasehold system.

“My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges,” King Charles said in prepared remarks.

Read more: Sunak Aims to Trap Labour With Election-Geared King’s Speech

The Tory pledge was met with skepticism by campaigners and sparked division in the party’s ranks, potentially leaving the government with another housing headache ahead of the next general election. While the bill includes a ban on developers selling new houses under leasehold, it does not extend that rule to flats, which make up 70% of all leasehold homes.

Conservative lawmakers are now poised to pitch amendments to ensure leaseholds — which do not give residents full ownership of their property — are phased out on the majority of homes, according to people familiar with the matter. The creation of new leasehold houses may still be allowed in “exceptional circumstances”, according to a government document published alongside the King’s Speech.

The long-promised package comes after years of pressure from campaigners to improve conditions for leaseholders, many of whom are charged extortionate fees to carry out repairs in their building or to extend a lease. The issue came to the fore after the Grenfell tower fire in 2017, when a subsequent change in regulation banned flammable building cladding, but left leaseholders on the hook for upgrades and in many cases unable to sell their homes.

As part of the reforms, the standard lease extension term will increase to 990 years from 90 years for both houses and flats, with ground rent reduced to £0. The requirement for a new leaseholder to have owned their property for two years before they can benefit from these changes will also be scrapped.

But the absence of more protection for new apartment buyers in the reforms has sparked concern, given the proportion of new-build houses sold as leaseholds was less than 1% of the total in December 2022.

“The government’s promise to abolish leasehold houses is a platitude,” said Linz Darlington, director at lease extension firm Homehold. “The situation is worse for many owners in blocks of flats, who are often obliged to pay high service, maintenance, and insurance charges, without seeing a great deal in return.”

Read more: Labour Eyes UK’s Broken Homeownership Dream as Vote Clincher

Still, some experts question the feasibility of converting flats to commonhold — a replacement for leasehold where residents collectively own their buildings. That’s because it relies on commonhold owners approving expenditure on maintenance and services to the building, which can lead to disputes.

“In terms of flats, a transition to commonhold is unlikely to solve the Rubik’s Cube,” said James Souter, partner at law firm Charles Russell Speechlys. “These proposals are based on an underlying presumption that a radical overhaul of the system is required, which is an oversimplification of a very complex issue.”

Renters’ Reform

King Charles also laid out the government’s plan to reform the lettings market, which includes a manifesto commitment to abolish ‘no-fault evictions’ — otherwise known as Section 21 evictions. That will only happen when stronger possession grounds and a new court process is in place.

Read more: UK to Probe Discrimination Concerns in Private Rented Properties

The Renters’ Reform Bill will also strengthen landlords’ ability to reclaim their property, adding new mandatory grounds for possession in the event of serious rent arrears or a desire to move a close family member into the home. Landlords will be able to evict renters who breach their tenancy agreement or damage the property in as little as two weeks.

The government will also introduce a new ground for possession for landlords in the student market to guarantee them possession of their properties each year for a new set of tenants.

“Renters will benefit from stronger security of tenure and better value,” King Charles said in the speech. “Landlords will benefit from reforms to provide certainty that they can regain their properties when needed.”

--With assistance from Kitty Donaldson.


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