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The Leasehold and Freehold Reform Act 2024 - here's what you need to know

on Monday, 01 July 2024.

The Leasehold and Freehold Reform Bill, introduced by the Conservative government last November, was successfully pushed through Parliament and received Royal Assent following the announcement of the general election.

It is a significant piece of legislation, and while the final iteration of the Act has attracted criticism for what it doesn't do, it will still have wide-ranging ramifications for our leasehold and freehold system of tenure.

The Bill was introduced by the previous Conservative government to deliver on that government’s manifesto commitments to make it cheaper and easier for more leaseholders to extend their lease, buy their freehold, take over management of their building, and buy out their ground rent.

It is difficult to summarise such an extensive piece of legislation, but the key takeaways are:

  1. Increasing the standard lease extension term for houses and flats to 990-years, up from 90 years in flats, and 50 years in houses, with ground rent reduced to a peppercorn upon payment of a premium
  2. Removing the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry at 80 years or less left on the lease term
  3. Requiring landlords to provide property information to tenants within certain timeframes when a tenant requests this in order to sell their property, reducing delays many have experienced during the conveyancing process
  4. Replacing buildings insurance commissions for managing agents and landlords with transparent administration fees, to prevent any abuse of leaseholders being charged excessive, obscure commissions on top of their premiums through their service charge payments
  5. Banning the sale of new leasehold houses so that - other than in exceptional circumstances - every new house in England and Wales will be freehold from the outset
  6. Introducing the right for a tenant of a lease with an unexpired term of 150 years or more to vary their lease to pay a peppercorn rent. Effectively, these provisions enable a leaseholder to buy out their ground rent without extending the term of their lease or buying the freehold.

In order to buy out their ground rent however, the tenant will need to pay the “required premium”, which in summary will equate to the value of the landlord's right to receive ground rent over the remaining term of the lease (and which could be prohibitively expensive in practice).

What are the practical implications of the Act on you?

These are just a few key examples of the proposed changes, but what are the implications for you?

Firstly, if you own leasehold property and are affected by some of the issues outlined, it would be wise to review your lease and consider whether you want to extend the term, buy out your ground rent, or perhaps seek to acquire the freehold. You would be in a more favourable position to do so going forward;

On the other hand, if you are a landlord or a developer and deal with leasehold disposals regularly then it may be wise to review your standard form lease and the terms on which your leases are usually granted. Could these amendments lead to a general trend in the market of granting longer term, 999 year leases, for example?

As a landlord to residential leaseholders, it will be important to understand your obligations introduced by this legislation so you don't fall foul of the requirements if you are faced with a leaseholder seeking to enforce any new rights.

It's also worth noting that in many instances, landlords will no longer be able to recover their costs from leaseholders when they make such requests, so these costs will be borne by freeholders and landlords.

What does the future hold for leasehold reform?

Despite the extensive amendments introduced by the Act, there were many who argued that the changes did not go nearly far enough.

Labour have pledged to abolish leasehold flats, and have said that they will "take further steps to ban new leasehold flats and ensure commonhold is the default tenure" going forward. Commonhold was introduced almost 20 years ago but has seen little appetite or uptake in the market, so while there are viable alternatives to leasehold in existence, implementing an alternative structure will need careful consideration and support.

And what of ground rent? One criticism of the Bill is that it was silent on ground rent under existing leases, despite prior suggestions from the Government that they would cap or remove all ground rents.

It remains to be seen what steps the new Labour Government will take, but the future of leasehold reform is far from over.


For more information regarding residential leasehold reform, please contact Rory Young, in our Commercial Property team on 07392 087 452, or complete the form below.

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