The Leasehold and Freehold Reform Bill – Where are we now?

Summary

Following publication of the Leasehold and Freehold Reform Bill (the “Bill”) on 27 November 2023, the Bill has been progressing through the legislative process. Thereafter we saw a call for evidence on 13 December 2023, the hearing of oral evidence and receipt of written evidence, as the Public Bill Committee proceeded to consider and debate various proposed amendments to the Bill now resulting in publication of a revised version. Report Stage (the last stage where amendments are discussed in the House of Commons, before the Bill has its third reading and is passed for consideration to the House of Lords) is due to begin on 27 February 2024. We have previously commented on the Bill as introduced and now we set out the notable amendments which have emerged from Committee Stage below. 

Amendments

The Bill, as amended by Public Committee, adds just over 50 pages, however we summarise what we consider to be the key amendments as follows:

1. A new ability to appoint a manager in respect of Estates (where freehold homeowners contribute to e.g. communal garden maintenance), allowing these owners flexibility and protection akin to those of residential leaseholders;
2. New provisions to request certain information from a Landlord/Estate Manager for a proposed sale of a property (both leasehold and freehold), coupled with an ability to claim damages where information is not provided;
3. Clarification around the rights of shared ownership leaseholders (as to which we comment further below);
4. The introduction of Leasehold and Estate Management Redress Schemes; 
5. Provision to reduce rents payable under intermediate leases where the sub-tenant has availed itself of statutory rights (a problematic amendment which we consider further below);
6. The introduction of a limited right to a lease extension where the Landlord is the National Trust;
7. A new exemption in the Leasehold Reform Act 1967 for certified community housing providers;
8. Disapplication of the “Standard Valuation Method” for the limited categories of shared ownership and Landlord and Tenant Act 1954 protected leases which qualify for enfranchisement rights;
9. Standardising the form of notice served under Section 20B(2) of the Landlord and Tenant Act 1985 (where costs are incurred but not demanded as a service charge within 18 months).

Comment

Shared Ownership 

Following the decision in Avon Ground Rents v Canary Gateway (Block A) RTM [2023] EWCA Civ 616, the position of shared ownership leases exercising statutory enfranchisement rights was clarified.

Until that case, it was thought that shared owners had no rights to rely on enfranchisement rights (including lease extensions) or the ability to acquire the right to manage a building where they had not acquired 100% of the shares in their property. This case held however that shared owners of lesser percentages were qualifying tenants for the right to manage regime and given the definition of qualifying tenant is identical in the Leasehold Reform Housing and Urban Development Act 1993 (the “1993 Act”), it followed that they too could exercise 1993 Act rights. The amendments to the Bill clarify that in most cases, Shared Owners will be exempt from the right to collectively acquire their freehold, however, they will be able to acquire extended leases. 

Appointment of a Manager

The introduction of a Tribunal appointed manager for freehold estates will no doubt be welcomed by homeowners. Much was said in Committee Stage however about the interaction between Appointed Managers and the Building Safety Act 2022 (the “BSA”), particularly that an Appointed Manager cannot be the Accountable Person for purposes of the BSA. There does not appear to have been any amendments included to alter this position, however it may be that an amendment is included as the Bill further progresses through the legislative process (and we have seen that this has already been proposed at Report Stage).

Redress Schemes

Many parties from across the sector have called for better regulation of Managing Agents and others managing residential property. The introduction of one or more Redress Schemes goes some way towards appeasing those parties, however we suspect most would feel it stops short since the provisions only appear to apply to landlords and formal estate managers, rather than to the agents appointed on their behalf. The detail of any proposed Scheme is currently lacking as provision is made for Regulations to be introduced, a draft of which is not yet available.

Reduction of Rent in Intermediate Leases

The Explanatory Notes to the Bill published alongside it in November indicated that the Bill included a right for intermediate owners to reduce the rents they paid, when the rent they receive was reduced owing to leaseholders exercising the rights contained in the Bill (known as commuting the rent). These provisions were not actually included in the Bill as introduced however. The amended Bill now seeks to introduce these rights for intermediate landlords. This was suggested by the Law Commission in its Report of 20 July 2020 in relation to lease extensions and is not considered to be controversial, particularly given that the premium for lease extensions can be shared between the intermediate and any relevant superior landlords. 

At first glance however it appears that where a residential leaseholder has exercised the new right to buy out a ground rent, the intermediate landlord also has a right to commute the rent, but without having to share the premium with the superior landlord. It is not clear why a distinction between the two regimes would be warranted or indeed if this is intentional.

If this interpretation is correct however and goes through without amendment, superior landlords and those who finance relevant property should be particularly concerned. We would be surprised if Parliament intended for there to be a distinction, so it will be interesting to see how this develops. We are of the view this should be given further thought as the Bill progresses.

Missing Amendments

Despite promises, there is still no amendment which purports to ban the sale of leasehold houses included in the Bill. An amendment has been proposed at Report Stage however and we will continue to follow and report on the Bill as it progresses.