The Government has said that it intends to mandate that, by the end of this Parliament, all newbuild flats will be commonhold instead of leasehold.
What will that mean for housebuilders and the developers, residents, investors and operators of real estate operational businesses such as retirement housing?
As discussed here, this Bill was first mentioned in the King's Speech on 7 November 2023. It has recently completed its report stage in the House of Lords, meaning that its next stage will be its third reading when its provisions will be tidied up.
Since the publication of the Government's 2017 white paper "Fixing our broken housing market", there has been much discussion about the Government's plans to reform the housing market especially by means of modernising the leasehold sector. The King's Speech on 7 November 2023 included further announcements about leasehold reform.
As of 30 June 2023, there are only 184 properties registered as "commonhold" within England and Wales, which is less than 0.01 % of the total number of properties in the same area. This evidences the extent to which the current form of commonhold ownership in the UK is unsuccessful.
The abolishment of ground rent in residential long leases comes as part of a package of Government reforms designed to curtail unfair practices in the leasehold market, which we explored in our previous briefing. From 1 April 2023,[1] this applies to all new leases granted with a term of more than 21 years in the senior living sector, though will not impact existing ones. The changes, brought about by the Leasehold Reform (Ground Rent) Act 2022 (the Act), have necessitated developers, investors and owners of retirement housing reforming their existing leasehold structures, which have typically relied upon ground rent as a way to recoup the enlarged capital costs of constructing enhanced communal spaces within retirement schemes.
In amongst the blizzard of press releases and policy documents emanating from the Department of Levelling Up, Housing and Communities since the New Year is a consultation called "Reforming the leasehold and commonhold systems in England and Wales". It is important for the commercial real estate sector because it contains new proposals which could tip the balance in mixed use buildings between residential leaseholders on one hand and freeholders and commercial leaseholders on the other hand.
The Leasehold Reform (Ground Rent) Bill 2021 will prevent landlords in England and Wales from charging ground rents in new leases of residential properties. This is intended to protect tenants from unfair charges, but presents a particular problem in the context of retirement housing.
In July 2017 the Department for Communities and Local Government issued a consultation paper seeking views from the real estate industry on various proposals to deal with public concerns regarding the sale of leasehold houses. Yesterday it responded, announcing that it will legislate to ban the grant of new residential long leases on houses.