Government will no longer abolish leasehold ownership of homes

Government plans to abolish leasehold property have been slackened, despite the earlier commitment by the Secretary of State for Housing, Housing and Neighborhoods to abandon the ‘feudal’ system.

In the coming months, Michael Gove is expected to implement changes that will help tenants choose their own property managers, limit land rents and prevent building owners from charging leaseholders for legal fees in litigation.

However, reports today indicate that he will not do away with the leasehold system altogether, as he previously suggested.

In January, Gove said leaseholds are ‘unfair’ and that ‘in broad terms, if you buy a flat, it should be yours’.

At the time, he said he had launched a consultation on the matter, but it’s unclear when or if it will be published ahead of upcoming announcements.

News of broader reforms being scrapped will be a blow to tenant farmers.

If you are currently buying a leasehold, you only own the property for a period of time, but not the land on which it is built. The landowner remains the leaseholder. This arrangement is most common for flats, but you can also get homes based on leasehold.

The lease you buy is often long – usually between 99 and 999 years. Banks will usually provide mortgages as long as the lease has 75 more years to run, but once the lease falls below 70 years, it may be more difficult to sell the property.

Freeholders can also place restrictions on what leaseholders can do with the property.

And tenants pay leasehold for the land, plus service charges to cover the owner’s responsibility for common areas, such as hallways or a garden.

Last year, the government’s ground lease ban for new-build homes came into effect in 2019

A spokesman for the Department of Leveling up, Housing and Communities said: ‘We are committed to better protecting tenants and empowering tenants to challenge unreasonable charges.

“We have already made significant improvements to the market – ending leaseholds on most new residential leases and announcing plans to make it easier and cheaper for leaseholders to renew their leases or buy their property.

“In accordance with our manifesto, we will propose further leasehold reforms later in this parliament.”

Other changes proposed at the time include that leaseholders would no longer have to pay for costly repairs, such as unsafe cladding, as the burden would shift to landlords.

The issue was a point of contention in the aftermath of the tragic 2017 Grenfell Tower fire.

Mistakes: Gove admitted ‘faulty and ambiguous’ government guidelines caused the Grenfell Tower tragedy to happen

In his statement to parliament in January, Gove told the House of Commons that ‘leaseholders no longer need to fear financial ruin in order to secure their homes’.

He also revealed plans to crack down on property managers, landlords and property owners who receive commissions and “other such payments” from insurers and brokers at the expense of tenants and tenants.

Instead, he said he would introduce “more transparent fees” and “don’t allow people to hide charges in obscure invoices.”

In 2019, the government banned the sale of new-build homes as long leases, effective June 2022. At the moment, existing homes and new-build homes can still be sold on a leasehold basis.

Katie Cohen, residential real estate partner at Keystone Law said: ‘Michael Gove’s comment in January 2023 about the abolition of leaseholds was unhelpful, short-sighted and without any guidance.

“It sent many tenants who filed legal lease renewal claims into a frenzy with clients withdrawing notices on a whim that leaseholds would be abolished. A majority of practitioners in the field are very pleased with the leasehold reform.

“There are far too many pitfalls for the unwary and the system as a whole needs to be reformed to make it easier for tenants to acquire their property or renew their leases.

“It was difficult to effectively advise customers on their next steps without some real guidance on the likely changes announced. It is to be hoped that changes will be implemented quickly, but in reality that will take time.’

Have you withdrawn a lease renewal claim because you thought the system was going to be abolished, or will you be affected by the reforms? E-mail editor@thisismoney.co.uk