The Leasehold and Freehold Reform Act: measures of success

Comment from the Association of Leasehold Enfranchisement Practitioners (ALEP)

The 4.9 million residential leases in England and Wales now face significant change following the enactment of the Leasehold and Freehold Reform Bill. The legislation may have been a long time coming, but was then sped through Parliament with ministers clearly keen to get the reforms on the Statute Book before the general election.

Almost 80% of lawyers and property professionals support leasehold reform, including the Association of Leasehold Enfranchisement Practitioners (ALEP) of which I am a member. ALEP is a professional body representing over 1,200 solicitors, barristers and surveyors who work in leasehold enfranchisement and has been instrumental in influencing leasehold reform to date. At ALEP’s annual conference last autumn, members were asked ‘In general, is the leasehold system in need of reform?’ to which 77.37% responded ‘yes’; 21.17% said ‘no’, and only 1.46% had no opinion.

Despite there being strong consensus among leasehold professionals coupled with consumer demand, the Leasehold and Freehold Reform Act is to an extent a watering down of the original commitments made in November’s King’s Speech.

Now that the Bill is on the Statute Book, it is interesting to assess it in its final incarnation (give or take some secondary legislation) against its original aims and objectives – and, I believe, necessary to do so as with the Labour party promising further leasehold reform, it is important for all involved to understand the extent to which leasehold reform has been achieved.

The fundamental objective of the legislation at its First Reading was to create a fairer and more balanced leasehold system that benefits both leaseholders and freeholders. The Bill sought to make it easier and cheaper for leaseholders to extend their lease or buy the freehold. Furthermore, it committed to reducing the burden of service charges, giving leaseholders more control over the management of their building, banning new leasehold houses and protecting leaseholders from unreasonable ground rents.

I believe that for the reforms to be worthwhile, most or all of the benchmarks outlined below should be achievable.

1. Improved availability and choice of mortgage finance

• Will lenders offer mortgages on shorter leasehold properties (e.g., under 80 years)? Are lenders becoming more comfortable financing these properties than previously?
• Will there be a change in the average loan-to-value ratio offered on mortgage products for leasehold properties?
• Are we likely to see new mortgage products specifically designed for leasehold properties?
• Will there be a change in the availability of specialist “leasehold rescue” mortgages aimed at helping leaseholders extend their lease or buy the freehold?

1. Improved ease and saleability of sale of flats

• Will we see a decrease in the number of leaseholders trapped in unsellable leasehold properties due to onerous lease terms?
• Will flats, as an asset class in their own right, have greater appeal and investment value?

1. Number of lease extensions

• Will the volume of lease extensions increase, and the time taken to enfranchise reduce?

1. The standard of building management and maintenance

• Will we see an improvement of building management and maintenance, resident experiences with property management, communication and of the overall living environment?
• Will there be an increase in the number of ‘empowered’ leaseholders participating in resident management companies or resident associations?
• Will there be a reduction in the costs lessees must pay in service charges? Also a change in the number of leaseholders experiencing financial hardship due to service charges.

1. Capital appreciation

• Will there be a transfer of value from landlord to tenant (rather than the transferred value being lost as the market fails to react)?

1. Reduction in disputes

• Will disputes between landlord and lessee reduce?
• Will we see an increased proportion of leaseholders winning those tribunal cases which do occur?

Furthermore, accepting that the Leasehold and Freehold Act is not a win-win situation:

1. Can the tribunal service cope with the potential disputes that could arise?
2. If several freeholders become insolvent, or if lessees are unable to secure insurance at an affordable price, will the government be able to step in with emergency funding or under writing, and if not who will?

Demonstrating that the majority of these benchmarks can be achieved is vital because it will partly determine any further stages of leasehold reform.