A Year of Change in the Leasehold Sector

As 2022 comes to a close, it has been an eventful year for the leasehold sector, with significant reforms reshaping the landscape. One of the most impactful changes was the abolishment of landlords' landlords'>ground rents for new leases, creating a fairer system for commonhold. This has forced house builders to reconsider land pricing as the once-lucrative trading of landlords'>ground rents—sometimes valued at 25 times their face value—has disappeared. Meanwhile, Michael Gove's role as Housing Minister has raised expectations for substantial leasehold reforms in 2023. The Building Safety Act 2022, which came into effect on June 28, is also set to influence property management with new fire safety regulations.

Key Leasehold Reforms: The Building Safety Act 2022

The Building Safety Act 2022 introduced significant changes to building safety management and funding for fire safety repairs. It ensures that leaseholders are protected from the costs associated with fire safety defect repairs in high-rise buildings.

Some key protections include:

• Shifting financial responsibility for fire safety repairs away from leaseholders.
• New fire safety standards that landlords must meet.

Changes to Ground Rents and Lease Extensions

From June 30, 2022, landlords'>ground rents on new-build apartments were abolished, a move that was welcomed by prospective buyers. Looking ahead to 2023, existing leaseholders expect changes in lease extension processes, including:

• Simplified and cheaper lease extension methods
• More certainty in lease valuation
• A temporary pause in lease extensions as leaseholders await further reform details.

EPC Regulation Changes for Commercial & Residential Properties

Energy efficiency remains a key focus for both commercial and residential landlords in 2023.

For Commercial Properties:
By April 1, 2023, all commercial buildings must meet at least an E rating on their Energy Performance Certificate (EPC). Non-compliant properties will be illegal to rent, and landlords face fines of up to £150,000.

For Residential Properties:
The Minimum Energy Efficiency Standard (MEES) for residential properties will increase from E to C, meaning over 55% of landlords will need to make upgrades. Improved energy efficiency benefits both landlords and tenants by reducing energy costs and increasing property values.

What Landlords Can Expect in 2023

Despite economic challenges, demand for rental properties is expected to remain high. Inflation, rising mortgage rates, and the cost-of-living crisis are forcing first-time buyers to delay homeownership, benefiting landlords with shorter void periods and higher rental income.

Several rental market reforms are also on the horizon:

• Decent Homes Standard: Privately rented homes may soon need to meet this 29-parameter standard, covering:

  • Electrical safety checks
  • Smoke and CO alarm installations
  • Gas, electricity, and water supply maintenance
  • Structural and exterior property upkeep

• Scrapping of Section 21 Evictions: The UK government remains committed to abolishing no-fault evictions, following Wales' move to a six-month notice period. This change would provide tenants at least 12 months of rental security.

• Student Rental Demand: University towns will continue to see strong demand for HMOs (Houses in Multiple Occupation), making them an attractive investment option for landlords.

• Landlord Licensing Schemes: More local councils are introducing licensing schemes, increasing compliance requirements and costs for landlords.

Short-Term Let Regulations & The Future of ASTs

The UK government is under pressure to regulate short-term lets, which have grown by over 100% between 2018 and 2022. Critics argue that this reduces the supply of long-term rental homes, driving up rents. Expect consultations on new regulations for Airbnb-style rentals in 2023. Additionally, the Assured Shorthold Tenancy (AST) agreement—which has existed since 1989—may soon be replaced. Scotland and Wales have already moved to new tenancy models, and England could follow suit.