Get highly effective and transparent letting and management services for just 15%. Improve your landlord experience and increase your property yield today with Oasis Living
Enquire Today
June 29, 2022
October 22, 2021

Leasehold Reform Explained For Landlords

Written by
Steve Sims

Leasehold Reform information. We will cover everything from what the updates are, how it affects you and more.

financial scales positioned on a desk

Table of contents

Thousands of landlords will gain the right to extend leases on their rental properties for up to 990 years without paying ground rent. This is part of a major reform of homeownership. A package of homeownership reforms that will scrap leasehold ground rents is currently being negotiated at Westminster. It is scheduled to become law from April 1, 2023. Meanwhile, the Competition & Mergers Authority (CMA) investigation into unfair leasehold contract terms runs alongside the new bill.

As a result, housing firms have buckled under behind-the-scenes pressure threatening legal action against them to stop chaining homeowners to restrictive contracts that can double the ground rent they pay every ten years or so. The Leasehold Reform (Ground Rent) Bill and CMA action against builders affects around 4.3 million homes, read on to find out how the new rules impact you.

What's changing for leasehold homeowners?

The government heralds the leasehold rule changes as the most significant reform to English property law in half a century.The new law stops freeholders‚ the landowners a property stands on - from increasing the ground rent a leaseholder pays. The rules also cover changing contract terms and charging sky-high fees for allowing homeowners to extend their homes or seek extra security with a longer leasehold contract.

The changes will allow house and apartment leaseholders to:

  • Extend leases to 990 years without paying any ground rent
  • Takeover the freehold
  • Extending the new rules to cover the elderly living in retirement homes

Future legislation will allow leaseholders to buy out ground rents without extending a lease. It will also reboot rules to encourage a new form of property ownership, a commonhold.

What is a leasehold?

A leasehold is a homeownership contract between two parties, a freeholder and the leaseholder. A freeholder owns the land a home is built on and allows the leaseholder to rent the property for a fixed term in return for the ground rent. At the end of the lease, the property reverts to the freeholder.

New law makes homeownership fairer and easier?

Leasehold arrangements are not a problem if you are the freeholder, but leaseholders have long complained they are complicated and expensive arrangements with unfair contract terms. The new law will reverse this inequality. Freeholders will lose a valuable income stream that gives them money for nothing.

Housing developers stand to lose the most as they build thousands of homes every year and sell huge numbers on leasehold contracts. Several big brands have already pledged to stop selling flats as leaseholds, including Taylor Wimpey, Bellway, Countryside and Barratt, while Taylor Wimpey and Bellway have agreed to extend the deal to cover houses.

Rip-off ground rents outlawed

keys held by a woman in a blue dress

The CMA told builders to change their sales model under the threat of court action for misselling homes by misleading homebuyers about the terms of their leasehold contracts.

The new rules also resolve the issues surrounding escalating ground rents.Contracts with homebuyers had a built-in ground rent increase every few years. For example, the first year's ground rent might be around £100. But after 30 years, rising to £150 a year and after 60 years hitting £200 a year.

More problematic is when the ground rent is a percentage of the property's open market value. A ground rent payment aligned with house prices is unpredictable. Experts say it can affect if a home can be sold and if a mortgage can be raised against the property.For, the shorter the lease term, the harder a home is to sell and mortgage.

Right to manage

Right to Manage for leaseholders who are unhappy with the management of their block of flats, the process excludes houses. It's relatively simple, but the leaseholders typically set up a management company for their block and serve RTM notices on the freeholder.

Read more about asserting the Right To Rent.

Creating a commonhold

Once the overhaul of the leasehold is completed, commonhold will to become the tenure of choice. It allows a group of leaseholders to own the freehold of their homes without any time limits. The arrangements cover housing estates and blocks of flats by setting up a management group for the 'unit holders', the owners of each home. Read more about commonhold.

Changes to leasehold law

By removing the financial incentive of escalating ground rents and development charges, the government is attempting to narrow the market for leasehold homeownership.The argument is leaseholds are not investment packages for developers. But an alternative pathway to property ownership by making the process cheaper and more transparent.

That's why ministers are looking at commonhold and Right To Manage as ways of breaking the stranglehold of the money men.The government has promised more legislation is on the way to tidy up the sector. These changes to leasehold law will come into effect soon.

nothing changes if nothing changes

Freehold acquisition

The Leasehold Reform Housing and Urban Development  Act 1993 allows tenants to band together to buy the freehold of their building at a reasonable and fair price. There are several advantages to this. For one it gives a peace of mind to flat wonder now that they no longer have to worry about a diminishing lease. It also allows them to negotiate and agree on new terms if the current lease terms were undesirable, unfair or unsatisfactory.

Owning the freehold of the building allows tenants to take more control over the covenants of the building or land. Some landlords may use these covenants in a way that tenants deem unfair and by purchasing the freehold, they can take control and enforce the covenants as they see fit. Sometimes third parties can purchase the lease of a building, bringing uncertainty to tenants that are currently living there. The new owner of the lease may choose to change the purpose of the building or decide they want to develop it. and therefore remove the tenants. If tenants own the freehold to the building, they can protect their property from this.

There are many other advantages for tenants to own their own freehold. Landlords and tenants should be aware of the classes with The Leasehold Reform Housing and Urban Development Act so that they can plan for all eventualities when owning or occupying a building with a leasehold.

Extending a lease

If there are not enough tenants willing to come together to purchase the freehold, extending a lease is an option. It is important to note that as your lease gets shorter, the more difficult the building will be to sell. With mortgages lasting 40-60 years, it is important for the bank to see that the lease is at least going to last the majority of the term of the mortgage. Otherwise, things get complicated.In order to extend the lease, you will need to speak to your landlord or the owner of the freehold of the building. This is usually the cheapest option.

However, if the landlord is not willing to extend, tenants or leasehold owners can apply for an extension through The Leasehold Reform Housing and Urban Development Act 1993.

Leasehold reform explained for landlords FAQ

It's happening in England, but what about Scotland and Wales?

The Welsh Assembly is considering leasehold reform but has yet to publish the details. The latest update is here. Scotland has a separate homeownership process and does not recognise leaseholds.

When does it take effect?

Many developers have already agreed to scrap their leasehold contracts in favour of clear and fairer arrangements. However, the government start date scheduled for the new law is April 1, 2023.

What happens if I already have a leasehold home?

The action by developers to rewrite leasehold contracts is retrospective, so you should receive a new contract in due course.

Where can I find out more?

The Leasehold Advisory Association is a key player in the reform. The association is governed by a board appointed by the Secretary of State for Levelling Up and Housing. Their website is crammed with independent advice and information.Other official links to leasehold reform information are to the House of Commons briefing papers on Leasehold and Commonhold Reform and the Leasehold Reform (Ground Rent) Bill 2021-2022.

Are property managers and agents regulated?

Part of the reform is regulating property managers and establishing a group for dealing with complaints from leaseholders. Both matters are with the government for consideration.

More About Oasis Living

rental property site for short term lets shown on laptop

If you are a landlord that owns property in the Greater London area, Oasis Living can help you to improve your property letting experience. We use tech and automation to make the letting process easier for landlords and tenants. No more wondering if your agent has updated your for safety or other compliance documents. No more agency voicemail or hold music.

With our 24/7 support team and a property management dashboard, you can see everything at a glance.

We offer a FAST tenant find service for 10% and a premium property management service for only 5%. These services include features such as premium property photography, free maintenance callouts and intuitive property staging. We'll ensure your asset is in perfect shape no matter what!

For more information, visit our about page or contact one of our property letting experts. Our mission is to improve your property letting experience.

May 5, 2022
May 5, 2022
The Best Letting Agents in London

Choosing your ideal letting agent is very important! We help you narrow down the best letting agents in London.

Read More
May 5, 2022
May 5, 2022
Property Investment: Where do I start?

Property investment can feel daunting. We've put together everything you need to know in this blog post, from finance to location.

Read More
May 5, 2022
May 5, 2022
18 Property Maintenance Companies in London

Finding the best property maintenance company can be a stressful job for a landlord in London. We've made it easier for you with this helpful list!

Read More
April 25, 2022
April 25, 2022
Buy To Let Advice For Landlords

Looking it purchase your first buy-to-let property? This handy guide will help future landlords by giving good advice on buy-to-lets.

Read More
an aril view of London and the river thames at dusk time
May 5, 2022
May 5, 2022
The Best Letting Agents in London

Choosing your ideal letting agent is very important! We help you narrow down the best letting agents in London.

April 20, 2022
April 20, 2022
EICR Certificates: What you need to know

An EICR is a comprehensive check of the fixed wiring of the electrics in rented homes. Find out about the necessary test in this guide!

Read More
April 19, 2022
April 19, 2022
Property Management Companies in London 2022

Property Management Companies can be extremely useful. Find out what they actually do, with this helpful breakdown of their services!

Read More
April 19, 2022
April 19, 2022
Best Online Letting Agents in 2022

Online Letting Agents are on the rise! Read our rundown and discover the best UK agencies that are disrupting the market in 2022

Read More
February 28, 2022
February 28, 2022
Landlord Association: Is It Worth Joining One?

Interested in joining a landlord association? Find out more about the associations available in the UK and what befits they offer!

Read More
A piggy bank of property investment money
May 5, 2022
May 5, 2022
Property Investment: Where do I start?

Property investment can feel daunting. We've put together everything you need to know in this blog post, from finance to location.

February 28, 2022
February 28, 2022
Unconventional Properties Are No Lifestyle Choice

Want more advice on buying or selling unconventional properties? This quick article will demystify them for you!

Read More
February 4, 2022
February 4, 2022
How COVID has changed the way we rent a home

A look back from 2022. How did covid change the rental market and what has permanently changed? We give you the lowdown.

Read More
January 18, 2022
January 18, 2022
Checking a Tenant's Right to Rent

With changes taking place in April, we've compiled everything landlords need to know on checking a tenants right to rent.

Read More
January 12, 2022
January 12, 2022
Winter Property Maintenance For Landlords

Stormy weather can make the new year challenging! Read our blog on how landlords can keep their rental homes well-maintained and winter-ready.

Read More
white house models on a blue background
May 5, 2022
May 5, 2022
18 Property Maintenance Companies in London

Finding the best property maintenance company can be a stressful job for a landlord in London. We've made it easier for you with this helpful list!