Leasehold limbo – between reform and abolition

The last act of Rishi Sunak's government was to pass the Leasehold and Freehold Reform Act (LAFRA). We knew then that a Labour government would claim that it had not gone far enough, and indeed, Matthew Pennycook's 21 November statement pulls no punches on this and the government has renewed its commitment to removing leasehold as the default form of tenure. However, Pennycook's statement did acknowledge the amount of work (and consequent time) that such reform will take, so we are likely to have leasehold for some time to come. Where does this leave us in the meantime, and how does this impact the retirement living sector?

Changes made by LAFRA

There's a few key areas of LAFRA that impact retirement housing: 

• Additional requirements for landlords operating variable service charges: more specific forms and timing for service charge demands, further tenant protection on costs, inclusion of estate management charges into this regime. 
• Additional requirements for landlords operating fixed charges: a requirement to report to residents, not on the costs involved, but on the services delivered. Amongst the typically educated and time-rich residents of most IRCs, this will create an ever-higher level of scrutiny and risk of challenge. 
• Definition of event fees: At last! For the purpose only (we have to start somewhere!) of ensuring that they are not administration charges, we have a definition of event fees, largely mirroring the language used by the Law Commission in 2017. This recognition in law does pave the way for wider use in key regulatory and policy changes and ultimately to feed into specific legislation around event fees. 
• Ban on leasehold housing (and exemption for retirement housing): the ban on the sale of leasehold houses, whilst justified in mainstream housing, does not make sense for retirement housing, where there is an ongoing management function – this is operational real estate. Fortunately this was recognised and an exclusion included in LAFRA. There is an administrative process for this however, the details of which require secondary legislation to confirm, but whatever the detail of that ends up looking like it will be one more hurdle for retirement scheme operators.

LAFRA made a reasonable attempt to curb some of the criticism around leasehold, with some notable gaps (nothing on existing ground rents) and it is for the most part not yet in force and will require (in the Housing Minister's words) "an extensive programme of detailed secondary legislation" in order for it to take effect.

What more is likely to follow?

Promises of abolishing the "two year" rule (the period required before a new leasehold owner can apply to extend their lease to a longer term so as to preserve their property value) and moving to 990 year extensions are unlikely to have significant impact on retirement leaseholders, who generally have been granted leases far longer than they are likely to be in the properties, and do not have the hurdle of mortgage finance to leap. Equally, easier enfranchisement is unlikely to be of particular appeal to those who have moved to avoid the burdens of home ownership, many of which are deliberately taken on by operators as part of their service offering.

More interesting is likely to be the raft of further consultations.

Due "very shortly" is consultation on the Act’s ban on buildings insurance remuneration such as commissions for landlords, property managing agents and freeholders being charged through the service charge and their replacement with transparent and fair fees. 

Promised next year is consultation on the Act’s provisions on service charges and on legal costs. The government has promised that the provisions will be brought into force as soon as possible following this, allowing leaseholders to more easily challenge service charges they consider unreasonable and not automatically having to foot the bill for such challenges (did I mention the highly educated, time-rich nature of retirement housing residents? Landlords beware!).

Labour has promised to end forfeiture in leases. Whilst few (if any) retirement operators would risk the reputational damage that would inevitably come with applying for forfeiture for removal of elderly residents, it can be a helpful tool to managing transitions to more suitable accommodation.

We also expect the first draft of the Leasehold and Commonhold Reform Bill in the second half of 2025 which is expected to focus on enacting the Law Commission's recommendations on Commonhold, as well as marking the end of ground rents.  Government has said it intends to end leasehold – which for our sector creates a huge potential opportunity to look at new ways of structuring the customer proposition and align risks correctly and outside of the rigidity of the leasehold system. 

No time for twiddling thumbs…

Whilst we wait for the result of consultation, further reform, or a full abolition of leasehold, it is vital for the sector that landlords continue to display high levels of integrity and transparency and act in a way that protects residents as much as it protects business interests. This is the direction of travel from the current government and is the right approach to instil the confidence in the consumer base that is needed to deliver the quantity of retirement housing the UK needs.