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Leasehold Reform Bill passes — but no ground rent cap for existing leaseholders

The Bill has squeaked in under the wire, but will London’s leaseholders be satisfied? (Daniel Lynch)
The Bill has squeaked in under the wire, but will London’s leaseholders be satisfied? (Daniel Lynch)

The Leasehold and Freehold Reform Bill passed into law today — one of the last pieces of legislation to make it through the House of Lords before Parliament is prorogued ahead of the general election.

But many of the hoped-for changes to alleviate the financial strain on leaseholders did not make it into law.

"This limited Bill is a muted win for leaseholders,” said Linz Darlington, MD of leasehold extension specialists, Homehold. “While the legislation is not without merit, leaseholders must see it as a step in a journey rather than the destination itself.”

Secretary of State for Housing Michael Gove had initially set out to scrap the leasehold system —where homeowners pay ground rent on the land their homes are built on to the freeholders — entirely. Earlier this evening, Gove announced that he would stand down as a Member of Parliament ahead of the election.

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Many London homeowners are trapped by ground rents that double every ten years and service charges that have become completely unaffordable. One in ten London leaseholders are considering selling up over the costs of owning a leasehold home – but are afraid that the conditions of their contracts could make it difficult to find a buyer.

“The bill does not contain many of the important provisions that were promised by the Government. The commitment to remove ground rent for existing leaseholders, or even cap it at £250, has not been included,” said Darlington.

"Another notable omission from the bill is the prevention of forfeiture, a draconian measure that allows a freeholder to repossess a flat for a debt of just £350,” he added.

“There is no justification for ground rents. It is a cost to leaseholders for no service provided as a consequence,” said Baroness Pinnock (Liberal Democrat), who noted that Gove had promised to reduce ground rents to a peppercorn rate.

“A significant number of landlords have their leaseholders by the short and curlies, to coin a term that was sent to me by a suffering leaseholder,” said Lord Bailey of Paddington (Conservative).

Existing leaseholders will find no relief from ground rent under the new legislation. However, when extending their lease they will be able to cap their ground rent at 0.1 per cent of the value of the freehold.

The Residential Freehold Association, which represents the owners of freeholds, had stronger words of recrimination for the Bill.

“The Leasehold and Freehold Reform Bill is a defective and poorly evidenced piece of legislation which has ignored the outcomes of consultation with industry and leaseholders alike,”  a spokesperson said.

“The Government has pushed this Bill through without proper scrutiny and as a result there is work to be done to ensure there are no unintended consequences that will negatively impact leaseholders.”

Representing freeholders, Lord Moylan (Conservative) said the cap was: “simply another unwarranted interference with property rights, with almost no understanding or explanation on the part of the Government of what the practical effects will be on the interests of legitimate freeholders, which include pension funds, charities and other parties.”