How will rent reform affect homeowners and buyers?

Rental rights have resurfaced in the news following Labour’s recent conference, where Housing Minister Angela Rayner pledged to complete the unfinished business of reforming what she called an exploitative ‘rental’ system.

The Government is already legislating to ban new rented flats, and has now pledged to introduce a new leasehold reform bill before Christmas.

Through the Commonwealth Tenancy and Tenancy Reform Bill, which was drafted but stalled under the previous government, ministers hope to finally put an end to the unfair system that has left people forced to pay spiraling ground rents and service charges for nearly five million rented properties – most of them flats – in England and Wales.

What is a lease and how does it differ from a freehold?

While a freehold estate gives you full ownership of the property and the land it sits on, a leasehold estate only provides the right to live in a property for a set number of years, while a freehold owns the land. Therefore, leasehold properties are seen as a less safe bet than freehold.

Shorter-term rental properties can be more difficult to sell, and even if you negotiate a lease extension, you’ll have to pay for that, plus additional professional and legal fees.

Most importantly, tenants are subject to regular ground rents, tenant management fees and service charges. All of these are currently largely unregulated and could grow without any oversight.

Inevitably, renters end up paying more, owning less, and are often subject to mounting fees for which they are responsible during each year of homeownership, with no real recourse.

What will (hopefully) change?

While leasehold reform has been talked about for a long time, the government’s announcement has put it firmly back on the agenda.

If ministers deliver on their promises, it could also mean that home buyers and sellers have more options, on fairer terms, in the not-too-distant future, and that can only be good news.

We’ve analyzed some of the most important elements of the government’s announcement.

Ground rent inventory

The government has reiterated its plans to cap ground rents by 2028. Ground rents – which a tenant pays to a freeholder for the right to live on their land – will be capped at £250 a year. The plans will then reduce ground rents to a “pepper corn” (or nominal amount) gradually over the next 40 years.

Crack down on management and permission fees

The government said it would cap management and permission fees charged to tenants.

This limit will also apply to freehold properties and privately managed properties, where people could be charged a fee to make cosmetic changes to their property.

In her speech at the party conference, the Housing Secretary pointed to cases where people were charged £250 for permission to own a pet, £400 for permission to change their front door, and a further £60 to install a doorbell. These are all charges that will be capped in the future under the government’s plans.

While the announcement did not specifically mention service charges and unfair charges, the previous government unveiled plans earlier this year that would increase transparency around service charges and give tenants more power to challenge unreasonable charges.

Licensing and a new, independent regulatory body for property management agents

Estate agents will need to be licensed and obtain appropriate qualifications to be able to work and will be subject to a code of conduct under the plans. A new independent regulatory body will also be appointed with powers to revoke the licenses of those who break the rules.

CLC welcomes these plans to raise the standards of estate agents and managing agents, which is a vital component of improving the home buying and selling process for everyone involved.

What happens if I want to buy a lease now?

While we await repairs, anyone considering purchasing a rental property should exercise caution and ask the conveyancer to explain the pros and cons. Choosing a regulated moving company will also provide you with greater protection and compensation rights if anything goes wrong.

In particular, find out how long is left on the lease and how much it will cost to extend it, what the ground rents and service charges are and whether they are likely to increase, as well as any other restrictions.

We require all our practices to display the CLC Secure badge prominently on their website, which if you click on will take you to a page confirming that they are regulated by us and that the website you are on is authentic.

You can also find a list of approved carriers as well as further guidance on buying and selling on our website here.