Leasehold and Freehold Reform Act 2024 – a leaseholder’s perspective
13 June 2024
The Leasehold and Freehold Reform Act 2024 (“the Act”) received Royal Assent on 24 May 2024. Amongst other things, it sets out amendments to existing legislation which relates to the rights of leaseholders to extend their leases or claim the freehold of their building. It extends to both leasehold flats and leasehold houses.
What will the Act do?
In relation to leasehold enfranchisement, the Act is intended to make it easier for leaseholders to extend their leases by, amongst other things:
- Removing the two-year qualifying period before a claim can be made.
- Increasing the period of a lease extension from 90 years to 990 years (or from 50 years for leasehold houses to 990 years).
- Significantly reduce the circumstances in which a lease of a house can be granted.
- Reduce the price payable for a lease extension by removing marriage value (this is the technical term given to the increase in price when a lease term drops below 80 years).
- Change the position on costs so that leaseholders are only required to meet the landlord’s costs in very limited circumstances.
Is the new law in force?
Although the Act has received Royal Assent, the matters which relate to leasehold reform are not yet in force. Whilst we do not know at this stage when the position will change, many commentators consider that this will not be until at least 2025. The Government’s own impact assessment suggested that it could be 2025 to 2026 before the majority of the changes come into force.
The Association of Leasehold and Enfranchisement Practitioners, of which Birketts is a member, wrote to the Government regarding enforcement and the response stated that this was at the “discretion of the next government”.
There are several reasons for the delay including:
- the upcoming General Election meant that the draft Bill was rushed through Parliament and so more time is needed to consider the provisions that will ultimately come into force;
- many of the measures in the Act will require further consultation and secondary legislation before they apply; and
- enabling legislation is required to bring parts of the Act into force.
What we do know is that with Parliament having now been dissolved, all business in the House of Commons and House of Lords has come to an end until a new Parliament is in session, possibly with a new government in place.
What should I do if I am considering a lease extension?
This will largely depend on your specific circumstances. You should contact us to discuss those. In general, your decision will be affected by whether or not you can afford to wait for the provisions of the Act to come into force and what your appetite for risk is. If you are selling or mortgaging because your lease term is close to 80 years, then it is unlikely you will be able to wait until the new provisions are in force. If, however, you have no such incentive to proceed with a claim under legislation, you may wish to wait it out and see what happens next year. The risk in doing this is that the cost of extending your lease goes up because your lease term will get shorter the longer you wait.
The Act will not apply to claims that have already been served and so you may wish to continue with an existing claim unless you can afford to withdraw that claim and wait (withdrawing means you will have to wait 12 months before you can serve a new claim and you remain liable for the landlord’s costs).
Some things to bear in mind
One of the new benefits of the Act will be that if a claim is withdrawn, or deemed withdrawn, you will not have to wait another 12 months to serve a fresh claim for an extended lease. In addition, under the Act, a leaseholder will not have to have been registered at HM Land Registry as the legal owner for a minimum of two years before they can serve a notice claiming an extended lease. This will assist with flat sales because a buyer will immediately qualify under the Act.
The Birketts view
There is, unfortunately, still great uncertainty in the market as to whether leaseholders should extend now or wait.
The Act, whilst improving the position for leaseholders (particularly those who need to sell), omits much of the detail needed to advise leaseholders fully. And it may be some time until its provisions are in force, and we are still therefore in a period of instability.
What we do know is that the existing regime remains in place which entitles leaseholders to extend their lease by 90 years, for the ground rent to be reduced to nil and for a leaseholder to be responsible for the majority of a landlord’s costs. Whilst imperfect, the existing legislation is, at least, certain.
-
Nicola Lebish
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2024.