Post-election: what next for property?

The end of the leasehold system?

Changes to leasehold laws have been on the cards for many years. Current procedures for extending leases and buying freehold interests have been heavily criticised for being complicated, expensive, and inconsistent. Ground rents (an annual sum paid by a leaseholder to the landlord for renting the “ground” that a property is on) have become particularly controversial, with escalating ground rents making national headlines.

Following various consultations, the Law Commission made several recommendations in reports published in July 2020 on:

• Leasehold enfranchisement – to enhance the rights of leaseholders to extend leases or acquire the freehold of their property;
• Right to Manage – to make it easier and cheaper for leaseholders to take over the management of their building; and
• Commonhold – to make commonhold (a form of freehold ownership of flats largely ignored over the last 20 years) more viable.

Two years ago, we saw the introduction of new restrictions on ground rents. The Leasehold and Freehold Reform Act 2024, pushed through parliament by the previous government before the general election, is due to bring in several other reforms. However, there are some notable omissions from the Law Commission’s recommendations in the Act and most of the provisions are not yet in force.

The Labour manifesto not only states that the new government will enact the Law Commission’s previously overlooked recommendations, but also sets out the new government’s ambition to bring the leasehold system to an end. This includes a proposed ban on new leasehold flats to ensure that commonhold is the default tenure. In the shorter term, the manifesto pledges to implement greater controls over ground rents and maintenance costs, including a review of the allocation of cladding remediation costs.

Tenancy reform

There is a clear desire in the new government’s manifesto to shift the balance of power towards tenants who are renting their homes privately and away from landlords. Although this shift is not new (see our summary of the previous government’s proposed Tenancy Reforms) the speed of change potentially is. Perhaps most striking is the pledge to end Section 21 ‘no fault’ evictions “immediately”, pushing through the last government’s proposed, but unimplemented, changes to the termination of assured shorthold tenancies.

In addition, the manifesto proposes an expansion of the rights currently available to tenants, including giving them the power to challenge “unreasonable” rent increases. The new government will also aim to raise standards of privately rented properties, with measures including a proposed extension of ‘Awaab’s Law’ (requiring certain landlords to fix health hazards in properties) to the private sector.

Get Britain building again

Labour’s mantra to “get Britain building again” has been widely publicised and, notably, was immediately reinforced by Rachel Reeves in her first speech as Chancellor. The headline statistic in support of this pledge is that the new government will build 1.5 million new homes over the next parliament. This has also been accompanied by promises of the biggest increase in social and affordable housing in a generation and more help for first-time buyers. There are suggestions of measures to prioritise first-time buyers over international investors on new developments and a potential increase in the stamp duty land tax rates payable by non-UK residents.

To achieve its ambition of building 1.5 million new homes over the next parliament, the manifesto sets out detailed associated planning reforms to encourage housebuilding. The new government has also set out an intention to prioritise building on brownfield and “grey belt” (i.e. low-quality green belt) land while taking measures to preserve the green belt.

Sustainability

There is a clear emphasis on sustainability in the manifesto, continuing recent trends. Property is one of the many areas targeted by the new government, which is unsurprising given the pressure on the real estate sector to address climate change.  

The measures include a proposal to invest an extra £6.6 billion over the next parliament to improve energy efficiency in 5 million homes. In addition, as part of the new government’s “warm homes plan”, homes in the private rental sector are to meet minimum energy efficiency standards by 2030. The sector is already familiar with minimum energy efficiency standards and it has been widely acknowledged that they will increase. It appears that a 2030 target date (from which the previous government had backtracked) is back on the agenda.

What does this mean for the residential property sector?

The manifesto builds on an existing trend of shifting control away from landlords and towards occupiers. Given the proposed abolition of Section 21 notices, we may see continued debate about the ability of the courts to cope with an increase in possession claims. 

There is a clear emphasis on freehold ownership. The expectation is that measures will aim to help first-time buyers get on the property ladder. As to the proposed leasehold restrictions, if property owners are not choosing commonhold over leasehold ownership, removing that choice is certainly one possible approach. While it is unlikely that leasehold ownership will be abolished any time soon, more regulation is certainly on the horizon.

What does this mean for the commercial property sector?

The potential impact of the leasehold reforms on mixed-use properties could mean more landlords seeing their leaseholders acquire the freehold interest. 

The manifesto shows that the preservation of the high street remains a concern. Proposals are likely to promote investment in the high street and to help “level the playing field” between bricks and mortar stores and online retailers.

However, the exclusions from the manifesto are as interesting as the inclusions, with a noticeable silence regarding commercial property policy. The Law Commission’s review of security of tenure under the Landlord and Tenant Act 1954 was previously scheduled for the autumn of this year. With no mention in the manifesto of reforms to the current system, commercial landlords and tenants will continue to ask whether and when change is likely in this area.

What happens next?

Given the high level of urgency indicated in the manifesto, it seems likely that the new government will seek to initiate some reforms early on. 

There is, however, currently a lack of detail as to how some of the proposals will be implemented. Two key events in the calendar can be expected to shed more light on the new government’s ambitions: the King’s Speech at the State Opening of Parliament on 17 July, followed by Labour’s first Autumn Budget.

Property owners, occupiers, developers and lenders will want to keep a close eye on ongoing developments and their potential impact. We certainly will. 

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If anyone is affected by the above or needs guidance on property law, please get in touch with our Property team for support and assistance.