Latest update on the Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 was finally passed on the last day of the last Parliament on 24 May and has now received Royal Assent. But the actual reforms won’t come into effect unless and until the Act is actually implemented – see below.
What changes does the Leasehold and Freehold Reform Act contain?
In brief, the main reforms contained in the new Act include:
· Making it cheaper and easier to extend a lease
· Banning the sale of most new leasehold houses
· Ensuring service charges are more transparent
· Making it easier for leaseholders to buy their freehold
When will the changes come into effect?
Although the act was passed on the last working day of Parliament, the actual reforms won’t come into effect unless and until the Act is actually implemented. And that is not automatic – it involves additional pieces of what is referred to as secondary legislation to both clarify the detail of many of the changes and to bring them into effect.
On the subject of commencement, the Act itself simply status follow “The other provisions of this Act come into force on such day or days as the Secretary of State may by regulations appoint”. And it’s worth noting however that in a letter written by Baroness Scott from the Department of Levelling Up as recently as April 15, 2024, included the following statement:
“we are also preparing for [the implementation of the Act} following Royal Assent. This will mean drafting and laying the secondary legislation required to bring the reforms into force. We anticipate that the majority of the reforms will come into effect in 2025-2026.”
But what will the Labour Party do? After all, have plenty of its own planned legislation they want to bring in ASAP – so actual implementation of the new Act could be pushed further down the waiting list. It’s hard to imagine a new Labour government prioritising implementation of the last piece of legislation passed by the Conservatives over their own wish list.
The most recent indications of Labour Party thinking came in the announcements made in the King’s Speech on July 17th, 2024 – see below for details.
So, in short, the answer to the question “when will the act come into effect” is very simple – nobody knows! But we suspect it’s unlikely to be before 2025 at the earliest.
Want the latest leasehold reform news? We will update this page with more information when the situation becomes clearer. So watch this space!
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Will there be any further leasehold reform in the short to medium-term?
That’s difficult to say.
Back on April 11th, 2024, the Labour Party, while committing itself to major reform and the apparent abolition of leasehold itself, reversed its earlier pledge to introduce legislation to abolish the leasehold system entirely within its first 100 days of government if it won the general election. It said it will need more time to prepare the necessary legislation.
And, interestingly, Matthew Pennycook, Shadow Housing Minister at the time, tweeted as follows on X (formerly Twitter) on 23 May, the day before the new act was passed:
“If elected, we intend to finally bring the archaic and iniquitous leasehold system to an end and make commonhold the default tenure.”
But a cynical person might say we’ve been here before. Michael Gove, the Minister with overall responsibility for these reforms had referred to leasehold as “unfair” in an interview with the Sunday Times back in January 2023, and “an outdated feudal system that needs to go”. But those plans were dropped, eventually in favour of the watered down Act that squeaked through as late as at 6:30 PM on the final day of Parliament.
Lease extension and enfranchisement – what changes will the new Act bring?
The 1st legislation since the Commonhold and Leasehold Reform Act 2002 came into force back in 2003 has introduced some fairly substantial changes – even if the eventual act was less radical than many had hoped. The main changes to be introduced are as follows:
- The need for a new leaseholder to have owned their house or flat for 2 years before they are able extend their lease is removed
- The standard lease extension term (available if you use the formal statutory lease extension process rather than agreeing an informal extension with your freeholder) will be increased to 990 years, up from 90 years for flats and 50 years for houses.
The introduction of the much longer term is unlikely to significantly increase the cost of extending your lease, but on the other hand, the additional 900 years probably won’t make a huge difference to the current value of your property.
- The act will ban the sale of new leasehold houses other than in exceptional circumstances. Amongst those situations where new leasehold houses can still be sold are those on retirement complexes.
- However that problem won’t have much impact on the housing market. According to the government’s own figures, the number of new houses sold as leasehold crashed from a remarkable 15% in 2016 down to under 1% by 2022.
And there is no suggestion of any automatic or free conversion of all existing leasehold houses to freehold. If you want to do that, it looks like you’ll still need to go through the process of enfranchisement.
Click here to read more about the freehold purchase of leasehold houses – House Enfranchisement
- The Act will change the way the premium, or price, you need to pay to extend your lease is calculated. It appears that in future surveyors will not be routinely expected to provide valuations – but the government have not yet provided details of how exactly future premiums will be calculated.
However it clear that valuations will be at rates set by the government, through secondary legislation replacing the current system of negotiation between specialist surveyors. This should reduce the discussion between freeholders, leaseholders and valuers over a fair figure and should also make the process faster.
Click here to read more about how our Lease Extension Solicitors can help you
- “Marriage value” is abolished – or more precisely, there is no longer need to share marriage value with the freeholder. This should, in theory, reduce the cost of extending a lease once that lease drops below the crucial 80 year period.
However the abolition of marriage value is bad news indeed for freeholders – and that includes many pension companies who have hugely invested in freeholds. Therefore we may find a situation where the freehold sector consider a legal challenge to this part of the Act through the courts, possibly on the basis of an infringement of their human rights have been infringed.
It’s worth noting that when the Law Commission considered the issue of the abolition of marriage value, a senior barrister they appointed to give a view as to whether abolition would infringe freeholder rights, advised that this issue was “finely balanced”.
- The new Act makes it cheaper for leaseholders to join together in buying the freehold of their block. In future, they won’t need to pay their freeholder’s costs when exercising their enfranchisement rights – each side will pay their own costs, something that was strongly opposed by freeholders and which could be another source of a legal challenge.
- More mixed-use leasehold buildings will become eligible for enfranchisement rights and the right to manage. Currently both the right to manage and buy your freehold are not available if more than 25% of the floor space of your block is commercial – for example if the ground floor of your block is an office or shop.
This limit will be upped to 50%, which will allow more leaseholders to exercise their right to manage or buy the freehold of their block.
Click here to read more about the Right to Manage your block
Further potential benefits to leaseholders introduced by the new Act
- The act removes the presumption that leaseholders will have to pay the legal costs of their freeholder if they challenge poor practice – this had been seen as a disincentive to challenge service charges.
- It introduces greater transparency with regard to service charges. Freeholders and managing agents will in future need to issue service charge bills in a standardised format which is supposed to make them easier to understand and challenge. Some of these rights will also apply to homeowners on new build estates where charges are made for the upkeep of communal areas.
- Freeholders who manage their building directly will need to belong to a redress scheme so leaseholders can challenge them if needed – providing freeholders with the same responsibility that managing agents already have
- The act makes it both cheaper and easier for leaseholders to take over management of their building, by allowing them to choose and appoint their own managing agent.
- It introduces what are seen as transparent and fair handling fees, outlawing opaque and excessive buildings insurance commissions for freeholders and managing agents
- Buying and selling any leasehold property is supposed to become both quicker and easier – the Act will set a maximum time and fee for the freeholder to provide the information needed for any sale to through (including building insurance and financial records)
What the new Act doesn’t do
The Act was a disappointment to many leasehold reform campaigners who had been pressing for much more radical change. And in particular the new Leasehold and Freehold Reform Act 2024 doesn’t introduce any of the following changes;
- It doesn’t set a date for the Act to come into effect – see above
- There is no abolition of ground rent for existing leases (despite a promise to do so appearing in the Conservative Party’s 2019 election manifesto). A cap of £250 for existing leases in the absence of an outright ban was suggested as being a possible compromise as recently as late April 2024 but didn’t make it into the final version
- The Act does not abolish the leasehold system in favour of commonhold. However commonhold remains perfectly legal and has been so since 2003 – it’s just that virtually no one has taken it up.
But as previously indicated, there appears to be a new commitment from the Labour Party to make commonhold the default method of owning flats in the event that they win the July 2024 general election and form a new government.
- It doesn’t provide any detail of how, in future, lease extension premiums will be calculated – we will have to wait to find out how this crucial part of the Act works
- Save as above, there is no change to the status of existing leasehold houses.
- As at present, therefore if you do have a leasehold house and want to own the freehold, you have to buy the freehold. However, since the government did initially indicate its intention to ban the future creation of leasehold houses, the number of those kind of properties being created has greatly reduced
- There is no change to the controversial issue of often exorbitant retirement flat exit fees
- There is no change to the current law on forfeiture for residential leases – under which, in certain circumstances, a breach of lease by the leaseholder means that their landlord can “forfeit” their flat – taking over legal ownership without paying any compensation
Will the Labour Party go further?
The Kings speech announced some radical changes which could go further than the current act – but as usual the devil will be in the detail. And there appears to be no indication of timescale to date. My instinct is that the latest announcement from the new Labour government doesn’t help – it seems to muddy the waters further.
But to give you an idea of their latest thinking here are some critical excerpts from “ briefing notes on the announcements made in the 2024 King’s Speech” taken directly from the Gov.uk website:
“. The Government will act quickly to provide homeowners with greater rights, powers and protections over their homes by implementing the provisions of the Leasehold and Freehold Reform Act 2024.
- The Government will further reform the leasehold system, enacting remaining Law Commission recommendations relating to leasehold enfranchisement and the Right to Manage, tackling unregulated and unaffordable ground rents, and removing the disproportionate and draconian threat of forfeiture as a means of ensuring compliance with a lease agreement.
- The Government will take steps to bring the feudal leasehold system to an end, reinvigorating commonhold through a comprehensive new legal framework and banning the sale of new leasehold flats so commonhold becomes the default tenure.
What does the draft Bill do?
- The Government will take steps to bring the feudal system of leasehold to an end and reinvigorate commonhold by:
○ enacting remaining Law Commission recommendations to bolster leaseholders’ fundamental rights to extend their lease and buy their freehold (enfranchisement), and take over the freeholders building management functions (Right to Manage).
○ reinvigorating commonhold by modernising the legal framework. We will also restrict the sale of new leasehold flats. The Government will consult on the best way to achieve this, so that generations to come will benefit from absolute home ownership.
○ tackling existing ground rents by regulating ground rents for existing leaseholders so they no longer face unregulated and unaffordable costs.
○ bringing the injustice of ‘fleecehold’ private estates and unfair costs to an end – the Government will consult on the best way to achieve this and implement new protections for homeowners on private estates in the Leasehold and Freehold Reform Act 2024.
○ ending the injustice of forfeiture so that leaseholders are protected against losing savings they have in their home for potentially small unpaid debts.
- In addition, the Government will implement the Leasehold and Freehold Reform Act 2024 so that leaseholders can benefit from more rights, power and protections over their homes.”
Possible legal challenges to part of the existing legislation make things even less clear
Many industry insiders have been expecting legal challenges from a number of sources. And the 1st challenge has now come in.
John Lyon’s Charity, a children’s charity has launched a legal challenge against the new legislation, arguing that if brought in, the Act will provide size of windfalls for millionaire London property owners at a direct cost to the charity. They claim the reforms will result in ‘terrible’ losses on its owned freeholds which will affect their funding of community projects in 9 London boroughs.
The charity estimates that the transfer adds up to a sizeable £3.6bn over 10 years. Causing it to lose approximately £1.4m annually.
You may be surprised to hear, for not dissimilar reasons, the Church of England also opposes the abolition of marriage value. Commenting in the House of Lords back in April 2024, Rt Rev Prof David Walker described the bill in its current form as “ robbing the poor to pay the rich: a reverse Robin Hood.”
And that’s before you look at the hit pension companies will take as a result of the changes – which could be as much as £30 billion.
Will the legislation come in, in what form and when? The entire situation is clear as mud – and our crystal ball is definitely in for repair.
Will the new Act make extending my lease cheaper?
Probably – that was certainly the purpose of the act, and the new changes are likely to particularly benefit anyone whose lease is already below 80 years and will therefore benefit from the abolition of marriage value.
But as ever, the devil will be in the detail, and we don’t have to have confirmation of how some the changes were actually working practice.
Should I extend my lease or buy my freehold now or wait until the Act comes into effect?
That’s a difficult question, not least because we still don’t know when (or theoretically if) the Act will come into force and how some of the details will work.
If you are currently considering when to extend your lease or working with your fellow leaseholders to buy the freehold of your flats, there are number of issues you are going to need to consider.
But making that decision is not easy, not least because we still don’t know when (or theoretically if) the act will come into force and how some of the details will work.
And it also depends on your personal circumstances.
But in making that decision, you will need to bear in in mind the following:
- Can you afford to wait?
Even under the new rules, which should make the whole process quicker, it is still likely to take months to complete your lease extension or freehold purchase (especially if you’re buying your freehold and live in a large block).
So, if you’re looking to sell in the short or medium-term, you may decide to start the process of extending your lease now, or face having to put your life on hold indefinitely.
- How long is your lease?
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- Leases near to or below 80 years – , you could face difficulties if you want to sell your property currently. Lenders can be reluctant to lend against shorter leases.
And if your lease has already dipped below 80 years, then currently marriage value applies – which will add significantly to the cost of your lease extension. When the Act comes in, marriage value will no longer apply and therefore extending a lease below that crucial 80 year stage is likely to be significantly cheaper. So you might be better off waiting.
- Leases near to or below 80 years – , you could face difficulties if you want to sell your property currently. Lenders can be reluctant to lend against shorter leases.
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- Leases with say 82 or 83 years or more to run – you probably won’t benefit from the abolition of marriage value if you decide to go ahead with your lease extension in the short-term – so there is less reason to delay.
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- Longer leases – if you still have a lengthy term remaining on your lease, for example, 100 years or more, you might prefer to wait for the Act to come in. There’s probably not much benefit in applying for a lease extension now.
And don’t forget the basic principle – the shorter your lease gets, the more you’re going to have to pay for an extension.
- Longer leases – if you still have a lengthy term remaining on your lease, for example, 100 years or more, you might prefer to wait for the Act to come in. There’s probably not much benefit in applying for a lease extension now.
- The level of your existing ground rent
If you have an existing high level ground rent, then it’s quite possible that the new rules could save you money – but there’s no certainty. That could be a good reason for waiting for the Act come in.
Alternatively if you already have a very low ground rent, then your lease extension is much less likely to become considerably cheaper – so you might plump to extend your lease or buy your freehold sooner rather than later.
And it’s even been suggested by some commentators, that those with existing low ground rents might, in certain circumstances, even need to pay more to extend their lease when the Act does comes in.
How much could waiting for the Act to come into force save me?
Another difficult question. It is not certain how much cheaper it will be to extend a lease when the Act does come into effect, as the method of calculating the premium still needs to be decided.
And some commentators have even queried whether, for a minority of leaseholders, the new act could actually increase costs for some – including those with low ground rents already or with more than 80 years left on the lease!
Can I still agree an informal lease extension or freehold purchase with my freeholder?
Yes – the new legislation doesn’t affect any informal or voluntary agreement.
What about shared freeholds?
If you and your fellow flat owners have purchased the shared freehold of your building, you can, of course, already grant yourselves lease extensions for free – so unless there is a dispute between you, the Act shouldn’t affect that.
But remember, if there were leaseholders who did not take part in the shared freehold purchase, they are likely to benefit from the changes outlined above – and you as freeholders, could lose out.
