The King’s Speech 2023 – another false-start for the housing agenda?

Barring the rare occasions when Charles (as Prince) deputised for his mother, today marked the first King’s speech to parliament in 70 years, outlining the Government’s legislative agenda for the upcoming parliamentary session. Almost equally pertinently for the housing sector, which has often felt like something of an afterthought in recent years (anyone in any doubt should look to the 15 housing minsters since 2010!) today’s speech was anticipated to advance the return of housing policy to the forefront of policy and the legislative agenda, but in reality it has disappointingly once again proven that housing is not given the importance the current crisis warrants. The good news, however, is that behind the speech itself (in the accompanying briefing notes) the commitment to some areas of housing remains!

Leasehold reform

Leasehold reform has been a longstanding aim of the current government commencing in January 2021 with the introduction of the Leasehold Reform (Ground Rent) Bill.  This resulted in future ground rents being set to zero for new lease agreements from 30 June 2022, and the Government stated that it would be introducing a “second tranche of reforms” to the leasehold system in the 2021–22 parliamentary session.

So, what has been announced for leasehold today? As expected, the King announced plans for a new Bill to be brought forward to reform leasehold by:

• making it easier and cheaper for leaseholders to extend their lease or buy their freehold;
• abolish punitive service charges;
• delivering greater security of tenure for leaseholders; and
• giving certainty to Landlords that they can recover their property when needed.

Those of you encountering an element of déjà vu about this announcement may be forgiven for this: Charles made a similar announcement last year when deputising for his mother the Queen. That did in fact lead to the Renters Reform Bill, though this is only just making its way through parliament now so it is hoped the new programme will not last this long.

On the face of it the speech is light on housing detail, but fortunately the detail within the Government’s briefing notes released alongside this indicate a new Leasehold and Freehold Reform Bill to deliver the following (which may look familiar to any of you familiar with the Housing sector, as these were all proposed as early as 2019 in The Housing, Communities and Local Government Select Committee report on Leasehold Reform).

1. Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold – so that leaseholders pay less to gain security over the future of their home. NOTE: this relates to the abolition of the “marriage value” payment required by freeholders when permitting a leasehold extension is to be brought forward – currently expected to be brought forward in 2024.
2. Increasing the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to £0. NOTE: This was widely anticipated but is good to see confirmed as part of the programme.
3. Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes – so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible. NOTE: a current problem is sellers needing to complete enfranchisement before they are able to sell, effectively ‘trapping’ them if they cannot afford to do so. This looks to remove that issue and is welcomed.
4. Increasing the 25 % ‘non-residential’ limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices, from buying their freehold or taking over management of their buildings – to allow leaseholders in buildings with up to 50 % non-residential floorspace to buy their freehold or take over its management. NOTE: this will open-up the option to enfranchise to a wider range of owners in buildings where there is a higher proportion of commercial floorspace.
5. Making buying or selling a leasehold property quicker and easier by setting a maximum time and fee for the provision of information required to make a sale (such as building insurance or financial records) to a leaseholder by their freeholder (known as ‘landlords’). NOTE: a minor point but anything which fixes the ability for freeholders to levy hidden charges or delay a sale is to be welcomed.
6. Requiring transparency over leaseholders’ service charges – so all leaseholders receive better transparency over the costs they are being charged by their freeholder or managing agent in a standardised comparable format and can scrutinise and better challenge them if they are unreasonable. NOTE: again anything which promotes transparency and ease of access to information for tenants is to be applauded, and standardisation of format is a necessity if tenants are to be able to understand the information provided.
7. Replacing buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees – to stop leaseholders being charged exorbitant, opaque commissions on top of their premiums. NOTE: it is uncertain whether this will simply just result in costs moving from one heading to another.  “Administration fees” could cover a multitude of other expenses as well, and should be required to be itemised.
8. Extending access to “redress” schemes for leaseholders to challenge poor practice. We will require more freeholders to belong to a redress scheme so leaseholders can challenge them if needed. NOTE: there are already redress schemes available, particularly through the Leasehold Advisory Service (LEASE) being The Property Ombudsman (TPO) and the Property Redress Scheme (PRS) though these only currently apply to managing agents. These schemes could be extended to landlords. Alternatively, or additionally, the remit of the Residential Property Tribunal could be extended, and its existence more widely publicised.
9. Scrapping the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice. NOTE: related to the above point, costs (or perceived costs) have proven to be off-putting for tenants. In the past landlords who have lost have simply added on the costs they were required to pay to the service charge. Proposals are to prevent this unless the tenant has acted unreasonably.
10. Granting freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders – by extending equivalent rights to transparency over their estate charges, access to support via redress schemes, and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders. NOTE: This appears to be a further attempt to prevent improper use of estate service charges and mitigate their impact and is linked to h) above.
11. Building on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work – protecting leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended. NOTE: this is already underway in many instances (the new form of Shared Ownership Lease in the affordable homes programme already ties into the 10-year repair period) but this announcement seems somewhat general.
12. Banning the creation of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset. NOTE:This was widely anticipated – though detail on what constitutes “exceptional circumstances” is still awaited…also this only relates to “new” properties and figures indicate that only 1% of new houses were sold as leasehold in 2022 so the impact of this could be minimal.

The Government also confirmed plans (already widely anticipated) to consult on capping existing ground rents. NOTE: it is interesting to note that there already appear to be exceptions being written in here (seemingly only relating to payments that require no service or benefit in return or have no requirement to be reasonable). Any proposed cap is also to be subject to that consultation, so is still not guaranteed. The Government must avoid watering these proposals down in order for them to be effective.

The welcome return of regeneration?

There was only a passing mention within the speech, but it was welcome to see reference to encouragement of regeneration of towns. However, there was no supporting commentary in the Government’s accompanying briefing note so detail on this is light. NOTE: Regeneration is a key tool to be utilised in bringing more homes into use (alongside the carbon agenda).  This has been under-utilised in recent years, and an increased focus in this area is to be welcomed. It remains to be seen if Local Authorities are tasked with this, or whether a government body will be established, or even if an existing government body with a proven track record (such as Homes England) is given a wider regeneration focus but it is hoped that this becomes more than just a brief footnote in the housing programme.

The Birketts view

The inclusion of housing proposals within the legislative programme for 2023/2024 are welcome, demonstrating as they do a greater focus on a sector in need of political focus. The private leasehold sector has widely been regarded as out of control (to such an extent that “Affordable Rent”, set as 80% of local open market rents, is no longer “affordable” in many locations) and moves to curb this are also welcome. However, details on the scope and extent of the leasehold ban are awaited with interest. For example, what of shared ownership leases? Shared Ownership is a key supporting element of the affordable housing programme across the country (and invariably affects houses) and most providers rely heavily on shared ownership sales to cross subsidise their affordable offering. We would therefore argue that careful consideration should be given to this aspect and the extent that it affects registered providers. We recognise that an exclusion of only registered providers would not seem to fully deal with the Government’s concerns on private sector abuse, as many for profit providers now exist, so an exclusion of Charities from the leasehold ban would seem appropriate to circumvent this.

Do the reforms go far enough?

There are already rumblings within the sector that these reforms do not go far enough, and Labour and rebel conservatives are already talking about joining forces on this point. This is backed up by DLUHC data which states that less than 1% of new-build houses sold as at December 2022 were leasehold – meaning these changes would have minimal impact on the sector as a whole. Inside Housing reported earlier this month that the CIH had described the exclusion of leasehold flats as “a significant omission”. These proponents of further reform argue that abolition of leasehold should be a blanket one covering houses and flats alike, and moving towards the Commonhold form of ownership the Government has been trying to promote. It remains to be seen if there is enough cross-party support to result in the Government being forced to make concessions to enact its proposed reforms, but this does seem a real possibility. This of course would throw up its own problems, as the current Commonhold framework is, to put it bluntly and as widely acknowledged, inadequate – as evidenced by the low number of commonhold titles established since the relevant legislation came into force in 2002 (only some 20 titles).   Any move towards wider use of Commonhold would require the current deficiencies in this model to be remedied, though it is achievable – Australia, the US and many European countries all utilise Commonhold successfully. We would therefore anticipate reforms to the Commonhold and Leasehold Reform Act 2002 to also be proposed if this is the course of action taken.

Stronger regulation?

While reform of leasehold is to be applauded, we would argue that it would be just as prudent to introduce proper regulation of the private rented sector – something which is conspicuously absent from proposed reforms to date. The Private Rented Ombudsman is a useful tool, but only relates to disputes and so is reactive not proactive. This means that it still relies on tenants being aware of it and willing to raise disputes in the first place. The Regulator of Social Housing performs an admirable function in the social rented sector of proactive regulation and is powerful and respected because its judgements mean something and have an impact on providers. A similarly powerful regulator in the private sector should be created, along with a framework of requirements for landlords, including a formula for rent in that sector, to tackle the main issues of substandard accommodation and out of control rents. This could incorporate the proposed “Decent Homes Standard” for the private sector (as detailed in the Government’s “Levelling Up” white paper in 2022) as a basis. This would arguably lead to a great deal of issues being resolved without such drastic recourse as abolition of the majority of leasehold ownerships.

Regeneration should not be forgotten

The mention of regeneration of towns is welcomed, but as a passing reference only should not be forgotten in the wider programme. There is much scope for a body to push public sector regeneration alongside the private sector housebuilders and charitable registered providers. This could go a long way to plugging gaps in delivery resulting from the withdrawal of Local Authorities from the housebuilding market. The reference to local people being in control is interesting and could suggest a focus on Community Land Trusts or similar vehicles.  However, it should be remembered that local residents often have no interest in new houses, as they are already residents themselves. Local delivery can often mean no delivery if not managed properly.

Affordable housing must be supported not prevented

Above all else, given the current severe shortage of affordable accommodation in England, the reforms proposed in today’s speech must also be enacted in such a way as not to disrupt the affordable housing supply. This supply is already facing unprecedented demands on resources in the face of spiralling build and contractor costs, the zero-carbon agenda and retrofitting, poor quality inherited stock and increased borrowing costs. Any reform must look to take account of the importance of Shared Ownership to that sector, and the severe impact its loss would have on housing supply for those most in need.