Most people in the sector are aware of the Leasehold and Freehold Reform bill which is currently with Parliament. Much analysis has been done of the benefits (or otherwise, depending on your view) for leaseholders, and the consequences for landlords.
The bill was introduced in the context of creating a more balanced environment for homeowners and to give them more control. However, there are products where these issues do not apply. Seniors' housing is one example, where the majority of residents move in specifically because they want to divest themselves of the burden of home ownership. Here we explore the potential effects on seniors' housing based on the current drafting of the bill (as at 28 February 2024).
The headline impact of the new rules would see a ban on new leasehold houses. Exemptions for retirement housing have only been included on the third reading in the Commons in late February. This would allow for new leases to be granted in respect of retirement houses as long as certain conditions are met. We say "certain", but in fact there remains uncertainty. Whilst the provisions impose age restrictions (including for those taking an assignment), and require the house to be part of a retirement scheme where all of these leases granted meet the same conditions (potentially barring some inter-generational schemes), the currently drafted exemption for retirement housing permits the Secretary of State to specify further conditions by regulation. We will have to wait and see whether more clarity is gained following passage of the bill through the Lords.
Additionally, there are further administrative requirements to be met, including obtaining certification from an appropriate tribunal that the lease is a permitted lease, additional marketing requirements and a requirement to serve a warning notice (in a similar manner to that required under the LTA 1985) which must be acknowledged by the tenant. Landlords of retirement housing will have to take steps to ensure that they comply with these requirements, or they may be subject to a financial penalty up to £30,000 and the occupier may have the right to acquire the freehold (or superior leasehold) for no consideration.
This would be particularly disruptive in retirement housing where leases often include obligations to pay deferred management charges which create a significant portion of the value for investors and operators. Such deferred management fees themselves may become subject to additional scrutiny as these could be interpreted as an estate management charge, which would become subject to the same regime as variable service charges. Fixed service charges, which are commonly used in the sector, would also come under enhanced scrutiny.
Remaining provisions of the bill would (amongst others) seek to make it cheaper and easier for some leaseholders (including of retirement housing) to extend their leases, buy their freeholds and increase the standard lease extension term to 990 years with ground rent reduced to zero. This increases the risk of enfranchisement which some investors have approached tentatively in the past, although given the reasons for which residents move into these schemes it still seems an unlikely outcome.
