What is the Leasehold and Freehold Reform Act 2024?

The Leasehold and Freehold Reform Act 2024 (‘the Act’) is a new piece of legislation that is intended to help leaseholders by making it easier and less expensive to buy your freehold, extend your lease and to assist with service charge regimes.

What does the Act do?

It makes various changes to leasehold and freehold legislation including:

  • Making it cheaper to extend your lease or buy your freehold by ceasing the requirement that a leaseholder has to pay their landlord’s legal costs
  • Banning the sale of new leasehold houses (other than in restricted circumstances)
  • Stopping excessive buildings insurance commissions
  • Ending the 2 year ownership requirement before extending a lease or purchasing a freehold related to the lease
  • Granting additional rights to freehold homeowners similar to those which leaseholders currently have with regards to estate charges and the transparency of how they have been calculated
  • Enabling more leaseholders to purchase their freeholds or exercise their right to manage where they live in a mixed-use building – currently you are barred from purchasing the freehold under the LRHUDA 1993 if more than 25% of the floor space is commercial property in your building. This restriction is being increased to 50%.
  • Increasing lease extension terms under the LRHUDA 1993 or LRA 1967 from a 90 or 50 year extension to a 990 year extension
  • Landlords who manage their own buildings will be required to belong to a redress scheme so that they can be more easily challenged in relation to poor practice
  • Removing the presumption that the leaseholder will pay the landlord’s legal costs if they challenge service charges
  • Introducing a legal right to buy out a ground rent (previously the only way to insist on this was by exercising your right to a lease extension)

Is the Act currently in force?

No. It became law in May 2024 but the main provisions of the Act require more legislation to bring them in to force. It may take the new Labour government some time to bring them in and for the time the pre-reform law applies.

What other reforms are anticipated?

The government has suggested further legislation will be introduced to continue these reforms in 2024/25. They are committed to ending leasehold and reviving commonhold.

They have indicated that they would like to:

  • Progress the Law Commission’s other recommendations in relation to leasehold
  • Take further action in relation to unfair ground rents
  • Restrict the draconian right of forfeiture
  • Require all new flats to be sold as commonhold flats
  • Further address the issues with private housing estates and the management charges that owners are being forced to pay

These further suggestions are eagerly anticipated by homeowners and enfranchisement practitioners.

 

Jo Ironside – Partner in the Enfranchisement Team

See our further commentary here: I need a lease extension – should I wait to extend my lease? 

 

Unfortunately, there is no black and white answer to this question as it depends on your personal circumstances.

The Leasehold and Freehold Reform Act 2024 is not currently implemented, and we do not know when the secondary legislation it requires will be completed by the government. The changes that the Act will bring may not kick in until 2025 or 2026.

In deciding what to do you should consider:

Will the Act make a lease extension cheaper for me?

It might do if your lease term has under 80 years left, or if your ground rent is more than 0.1% of the value of your property (i.e. over £200 on a property worth £200k). The Act was intended to help people by removing the requirement to pay ‘marriage value’ which kicks in when you drop below 80 years, and to help people who are bound to pay high ground rents in their lease by capping the sums for the purposes of computing the premium you will pay.

Will the Act make a lease extension more expensive for me?

The aim of the legislation is to make it cheaper to extend a lease or buy the freehold and the abolition of marriage value and having to pay landlord’s costs will likely achieve this – BUT at the current time it is impossible to say that ALL leaseholders will pay less.

There are some elements of the valuation of the premiums you will pay that are still uncertain  (i.e. the deferment and capitalisation rates) and it is possible that if they are set in legislation at a different rate to what is currently being used by surveyors then it could actually increase the cost of a lease extension premium.

It is thought currently that it is possible that the purchase price you would pay, where you have more than 80 years left on your lease, or a relatively low ground rent, may increase albeit that this is not what was originally envisaged.

What does this mean?

You may have your own reasons for pursuing the freehold of your flat, or a lease extension as soon as possible. For example, if you are considering selling the property imminently you may not want to wait, or if you want to obtain the freehold with your neighbours because taking over the management of your building is important to you as well as getting a lease extension. This means that there is no objective answer to whether you should extend now or wait.

However, it is anticipated that, if your lease has already fallen below 80 years or you have a high ground rent and you have no pressing need to extend your lease or purchase your freehold, then you would likely be better off waiting for the law to change before taking action. In these circumstances, the proposed removal of marriage value and the cap on ground rent in calculating the premium you will pay will be advantageous.

In what circumstances would it be prudent to extend my lease before the reforms?

  • If you are looking to sell in the next year or so – lease extensions can hold up sales and cause chains to breakdown. If you know you need a lease extension and will be wanting to sell soon– you should extend now to avoid this.
  • If you have 80-82 years left on your lease – the reforms are unlikely to be in before you drop to under 80 years left on your term when marriage value kicks in. You should extend now as there is no guarantee that it will be cheaper in future.
  • If you are mortgaging or remortgaging and the current lease is an issue – probably better to deal with this issue now.
  • If you own a share of the freehold – the changes will not impact you as in this situation you are unlikely to need to pay a premium to obtain a lease extension.

When will it benefit me to wait before extending my lease until the reforms are brought in?

  • If your lease has more than 82 years left – you could extend now to take advantage of the certainty of the current legislation – or you could take your chances and hope that the legislation lowers the cost as it was intended to in due course.
  • If your ground rent is above 0.1% of your property value (or will be) – it is worth waiting if you can because it many be cheaper under the amended regime.
  • If your lease term has dropped under 80 years – the abolition of marriage value will likely make it cheaper if you wait.

Our specialist enfranchisement team would be happy to discuss this further with you if you’re still not sure what to do.

Jo Ironside – Partner