Gove urged to close ‘loophole’ in leaseholds

Michael Gove, has been urged to close a “loophole” which allows building companies to sell freeholds on to private companies, without having to offer it to leaseholders first.

These concerns have been raised by Conservative MP Bob Blackman, at the final reading of the leasehold reform bill earlier this week. The MP argued that legislation currently permits companies to sell freeholds to firms that exploit “every aspect of the freehold”.

Further concerns were also raised by other MPs about the Housing & Levelling Up Secretary’s signature bill, which has pledged to end spiralling leasehold prices for thousands of homeowners.

“It is a shame that this bill continues to allow the leasehold system to be propagated, even on new houses. The best solution would be to replace it altogether” said Sebastian O’Kelly, Chief Executive of the Leasehold Knowledge Partnership, which represents leaseholders.

Gove has pledged to end the leasehold system, calling it “outdated” and “feudal”. There are millions of people who own their homes through a lease throughout England and Wales. However, there are very few places left in the world where a leasehold system still exists.

Under current legislation developers are given at least two ways to bypass the Right of First Refusal. Firstly, a builder can either arrange to sell the freehold at a future date to a third party investor, as long as that agreement is created before they sell the first flat, or secondly, they can transfer the ownership of the freehold to a company and then sell the company after two years.

The existence of these loopholes has stopped many flat buyers from owning a share of the freehold and having control of their site.

Blackman has suggested that banning this practice should be included in the new legislation, which is now in the House of Lords.

He said: “Surely we can close this loophole and close it this afternoon by ensuring that the freeholder must give the leaseholder first right of refusal to purchase the freehold.”

Responding to these comments, Housing Minister Lee Rowley said: “I do understand the point he is making. I hope that some of the changes that are within this bill should mean that the acquisition of the freehold is much easier [for leaseholders].”

The leasehold bill’s main provisions would make it cheaper and easier for leaseholders to extend their lease and buy the freehold, increase the standard lease extension term to 990 years and reduce ground rent to a peppercorn of zero financial value.

The Leasehold and Freehold Reform Bill was introduced to the House of Commons on 27th November 2023 and completed its passage through the House of Commons on 27th February 2024. It is now in the House of Lords and the earliest date it could be passed into law (to be decided by the Secretary of State), would be by Summer 2024.