What’s new: The Leasehold & Freehold Reform Act
When the Prime Minister called a snap General Election for 4th July 2024, it left the fate of 19 Bills hanging in the balance*. These items of legislation were at various stages of debate, with two directly relating to the property sector.
The Renters’ Reform Bill was a casualty of the period before a Parliament is prorogued, known as wash up. This is when Bills are prioritised and pushed through the House of Lords and the House of Commons, before passing into law.
Green light for leasehold reforms
The Leasehold & Freehold Reform Bill did make the cut. Although now an Act, the law didn’t change overnight and the existing leasehold legislation remains in place. A small number of minor amendments to the Building Safety Act are due to come into force on 24th July but it will be down to the next ruling Government to decide when to apply the different parts of the Leasehold & Freehold Reform Act.
No immediate changes but some amendments
It’s likely there will be a phased implementation in order to give all those involved time to prepare. In the case of valuation rates for leasehold extensions, further consultation and even separate legislation may be required, so we may not see any changes until at least 2025 or even 2026.
The urgency to get the Bill passed did mean there were some amendments to what was originally proposed and in this article, we explain what has – and hasn’t – become law.
A cheaper, easier way to extend leases & buy freeholds
The standard leasehold extension term is set to change. Tenants will enjoy the security of 990 years leases, which is up from 50 years for houses and 90 years in flats. Marriage value will be abolished – this is a premium charged to the leaseholder when the lease has less than 80 years to run. The abolition will make it cheaper for those with a short term to extend their lease.
Another aspect that will make it easier to review a lease is the removal of a leaseholder’s requirement to have owned the property for two years before they can extend their lease or buy the freehold. Both of these requests will become possible as soon as the leaseholder completes on the residence.
Clearer reporting by building managers & freeholders
Many leaseholders live in blocks of flats that are privately managed and there has been concern over the level of transparency when it comes to service charges. The Act will force freeholders, or their managing agents, to issue bills in a standardised format for easier inspection by leaseholders. Those managing the block will also be required to provide a year-end report that sets out planned major work.
Extending the redress requirement to freeholders
The Act does acknowledge that leasehold-freehold relationships sometimes break down – often around the issue of service levels and billing – so freeholders will have to belong to a redress scheme. This will allow leaseholders to mount a challenge where there isn’t a managing agent (the latter is already required to belong to a redress scheme). The Act will abolish the assumption that a leaseholder will pay the freeholder’s costs when they challenge poor practice.
Both of the above points will also extend to leaseholders residing on private and mixed use estates, so there is a level playing field. The Act didn’t go as far as extending access to a redress scheme and all the protection it offers to freeholders who pay estate charges.
Self-management & enfranchisement made more accessible
Leaseholders who are still not happy with the way their building is run, or would like greater control, will find it easier and cheaper to take over the management – known as the Right to Manage – as a result of the Act. They will be able to appoint their own managing agent or set up a company to manage the building themselves.
The Act has also changed the percentage of the building that needs to be residential before the Right to Manage kicks in. Previously, it only applied to buildings where 25% of the floor space was for commercial use but this will be increased to 50%.
Leaseholders who are unhappy with their status will also find the Act makes it more affordable to pursue their enfranchisement rights – that’s when enough leaseholders in a building want to buy the freehold. When the Act is enforced, many leaseholders will not have to pay the freeholder’s costs when buying the freehold.
New ways of buying & selling leasehold properties
With the Department for Levelling Up, Housing and Communities (DLUHC) estimating there are around 4.98 million leasehold homes in England alone, the sale of such properties is a regular occurrence. If you’ve ever bought or sold a leasehold dwelling, you’ll know the conveyancing can be more complex and time consuming. The Government, however, is using the Act to reduce unnecessary delays by setting a maximum time and fee for home buying and selling information.
Two important elements dropped
In the future, there should be far fewer leasehold properties in the market, as the Act has banned the creation of brand new leasehold houses. The Act did fall short of banning new leasehold flats and these will continue to be built.
Another aspect that didn’t come to fruition was a proposed cap or abolishment of existing ground rents. As a halfway measure, leaseholders will be able to reduce their ground rent to a peppercorn (£0) by extending their lease or pursuing a new legal right to buy out the ground rent. It’s worth noting a new legal right, which will allow leaseholders to buy out the ground rent without extending the lease at the same time.
*9 passed into law, 9 perished and 1 was carried over
