Leasehold reform becomes law

The Leasehold and Freehold Reform bill has become law – one of the last pieces of legislation to make it through Parliament before it was dissolved in preparation for July’s general election. The reforms, which have been the subject of a great deal of scrutiny over the past few years, aim to make it easier and cheaper for leaseholders to extend their leases. However, plans to abolish ground rent for existing leaseholders or at least to cap it at £250 have not made it into the final version of the legislation.

So, what does the new legislation contain?

• Changes to the way lease extension premiums are valued will make it easier and cheaper for leaseholders to extend their leases or purchase the freehold.
• Leaseholders will also no longer have to pay their freeholder’s legal costs when making a claim or seeking redress against them.
• Ground rent will drop to a ‘peppercorn’ (i.e., nothing) following a lease extension.
• The standard lease extension term for both flats and houses will be extended to 990 years.
• It will be easier for leaseholders to buy and sell leasehold properties, with a cap placed on the time and fee charged for buying and selling information.
•  The punitive ‘marriage value’ that was previously owed when extending leases with fewer than 80 years to run has been abolished.
• The ‘non-residential’ threshold for tenants purchasing the freehold of a mixed-use building (or taking over the management via a right to manage claim) has been increased from 25% to 50%.
• Tenants will no longer have to occupy a property for two years before being able to extend their lease.
• Tenants will no longer have to wait for a year between lease extension claims.
• Leaseholders will have more power to challenge landlords’ unreasonable charges at Tribunal.
• The sale of future leasehold houses will be banned other than in exceptional circumstances.
• Freehold homeowners on private or mixed tenure estates will have the same rights of redress as leaseholders and the same right to transparency over estate charges.

What next?

The Act has been met with mixed reactions from industry commentators, with some disappointed that the government’s original commitment to remove or cap ground rent for existing leaseholders seems to have melted away in the rush to get the legislation passed. Others have pointed out that the controversial practice of forfeiture, which allows freeholders to repossess a flat if a leaseholder owes more than £350 in ground rent, service charges and/or administration charges, has been left similarly untouched.

Many of the changes contained within the legislation will not come into effect immediately, and there has been commentary on the lack of clarity over timescales. Mark Chick, director of ALEP (the Association of Leasehold Enfranchisement Practitioners), commented:

“We would welcome prompt clarity about the likely timescales for commencement. We anticipate the public would likewise welcome certainty about this. We do have some concerns that by pushing this bill through, quite literally as the last piece of business in this parliamentary session, that there may be unintended consequences lurking. We have seen this with other legislation such as the Building Safety Act 2022.”

Legal advice is vital

Whether you are a leaseholder or a freeholder, you will likely have many questions relating to the impact of the new Act on your own situation.

With so many changes to contend with, it is imperative to seek legal advice from an experienced leasehold enfranchisement solicitor, who will be able to advise you on the latest updates and explain what the new situation means for you.

Our Head of Leasehold Enfranchisement, Salvatore Amico, is himself a member of ALEP and has decades of experience in this complex area of the law. He, like many other leasehold practitioners, has been following the government’s leasehold reform journey with interest for many years. He will be able to help you move forwards with your own journey, whether you are looking to extend your lease or are concerned about the impact of the new laws on your business.

Please do feel free to call Salvatore to discuss your particular situation on 0203 871 0039 or email salvatore.amico@attwaters.co.uk.