Leasehold Reform Bill – What is it and who does it affect?
Are you thinking of buying a leasehold property in the not-too-distant future? Then it may be worth holding off until the Leasehold Reform Bill is passed. This new bill aims to tackle ground rent and unfair practices that have become the norm in recent years. And, while the bill promises to be good news for new buyers, unfortunately it won’t benefit existing leaseholders.
What is leasehold?
There are two types of property purchase which are freehold and leasehold. With freehold property you own the property as well as the land that it is build on and are responsible for the upkeep of it all. Leasehold is where you own the property but not the land that it sits on as this is owned by a freeholder. Common examples of leasehold properties include flats, but it is also becoming more commonplace for developers to sell new-build properties on a leasehold basis.
Leaseholders must pay ground rent to the freeholder each year and must seek permission from the freeholder before making changes to the building such as an extension to a house. Leasehold terms are commonly between 150 and 999 years for new properties.
About the Leasehold Reform (Ground Rent) Bill
The Leasehold Reform Bill will apply to new long residential leases in England and Wales and is set to address unfair practices in the leasehold system. There has already been a ban on leasehold sales for most new-build single dwelling houses which has helped to stop some developers from raising ground rents excessively.
Under the Leasehold Reform Bill:
- Prohibited Rents will be introduced, and the general rule (subject to exceptions below) will be that the only rent permitted under Regulated Leases will be a peppercorn per annum (essentially outlawing demands for monetary rent payments in most new Regulated Leases)
- if a Regulated Lease attempts to reserve a Prohibited Rent, then the Ground Rent Bill will apply so that the landlord will only be able to collect the amount permitted under the Ground Rent Bill;
- landlords could face fines of between £500 and £5,000 if they charge Prohibited Rents (with scope for this to be more in the event of multiple breaches); and
- landlords who have charged Prohibited Rents and go on to sell their interest in a building could still face financial penalties for up to six years after the event.
When will the bill be enacted?
Currently the bill is in the process of passing through the House of Lords and is in the final stages of this. The next stage will see it pass through a series of readings at the House of Commons before coming into action with Royal Ascent. To find out more about the bill and keep up to date with progress you can check out the Parliamentary Bills section of the UK Parliament website here.