Legal

Leasehold and Freehold Reform Act 2024

The Leasehold and Freehold Reform Act 2024 (“the Act”) was pushed through the House of Lords before Parliament was dissolved on Friday 24th May 2024, ahead of the recently announced forthcoming General Election.

29 May 2024

A huge shake up in the leasehold industry?

In recent years leasehold ownership has come under much scrutiny, with doubling ground rents leaving some leaseholders trapped in properties they cannot sell or remortgage.  The Act is aimed at making home ownership fairer, easier, and more transparent in the sector.

Whilst the Act has become law, its provisions will not come into effect until a date to be specified by the Secretary of State.  It is anticipated it will come into effect in 2025/2026 following necessary secondary legislation being implemented to enable the provisions of the Act to work in practice.  This does leave scope for challenges to be made from opposition groups and as the dust settles on the news; this will become more apparent.   In general terms the Act as it currently stands seeks to do the following:

  1. 990 years lease extensions; under the current Leasehold Reform Housing & Urban Development Act 1993, where a statutory lease extension is granted, a qualifying leaseholder can extend their Lease by an additional 90 years plus the unexpired term. This Act seeks to extend that term to 990 years offering long term stability for leaseholders.  However, we are yet to understand the implications this longer lease term will have on the premiums to be paid.
  2. The abolishment of the two year ownership requirement; currently under the Leasehold Reform Housing & Urban Development Act 1993 a leaseholder must have been the registered proprietor of the leasehold property for a minimum of two years before they can serve a Section 42 Notice and commence the procedure for a statutory lease extension. It is proposed that this be abolished allowing new leaseholders to immediately serve a Section 42 Notice upon purchasing the property. This also helps those who have low lease terms looking to sell their properties, removing the need for a Section 42 Notice to be served by the current tenant, as seller (presuming they qualify), and assigning the benefit to the buyer on completion of the sale.
  3. Removal of marriage value; under the current system marriage value is payable on lease extensions where a lease has fallen below 80 years in term. The marriage value can substantially increase the premium payable for a lease extension.  It is proposed that this will be scrapped making it cheaper for those who have lower length leases to extend the term. However, we have no further details on how the premium will be calculated in place of marriage value to compensate landlords, if at all.
  4. Mixed Use Buildings: under the 1993 Act leaseholders in mixed use buildings could collectively come together and purchase their freehold or take over the management of the building if the building’s non-residential space was less than 25%. This has been increased under the new Act to 50%.  It is yet to be seen the impact this will have on commercial Landlords.
  5. Landlord’s costs: the general rule currently states that the leasehold pays the Landlord’s legal and surveying costs. The Act seeks to reform this in a radical way which appears to displace this obligation from the leaseholder back to the freeholder when a leaseholder requires a lease extension or when they are looking to collectively enfranchise.

Other points have also been introduced under and they are as follows:

  • Changes to service charges – service charges now must be presented in a standard format and leaseholders will be able to challenge unreasonable charges in a much easier way.
  • Building insurance fees – commissions are replaced with transparent administrative fees which we believe will be set as a standard rate.
  • Redress schemes will be put into place empowering leaseholders to challenge poor practice by freeholders and managing agents.

M&P Commentary

Shelley Fitzpatrick, Senior Associate Solicitor in our Residential Property team, said:

“Whilst the reform will be welcomed by leaseholders, many of whom have found lease extensions/the enfranchisement process difficult, complex and costly, freeholders are set to lose dramatically. It is unknown what impact the longer standard lease extension will have on premiums and time will tell how the market will react to this.

Whilst the Act has been passed in Parliament, no implementation date has been put forward. It is anticipated this will be staged in and will be subject to secondary legislation which could see the implementation date pushed back to 2025/2026.  My understanding is that no calculation formula has been set forward in the Act for how the valuations will be carried out under the new legislation and this is something which will need to be considered in detail prior to marriage value being scrapped.

I am a specialist within the area of leasehold enfranchisement and deal with both informal and statutory Lease extensions.  I act for both Landlords and leaseholders and have extensive experience in this specialist field.   If you are thinking of extending your Lease or collectively enfranchising with your fellow leaseholders please feel free to contact me at Mullis & Peake and I shall be happy to guide you through the process with the proposed reform in mind.”

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