The Leasehold and Freehold Reform Act: Rights, Powers and Protection

By Beth Norman Associate (FCILEX) in Commercial Property at Girlings Solicitors

The Leasehold and Freehold Reform Act became law on 24 May 2024, but has yet to be fully implemented. The Act aims to overhaul unfair practices and disadvantages faced by leaseholders by providing them with more rights, powers, and protections over their homes.

What is in the Leasehold and Freehold Reform Act?

The Act will strengthen existing consumer rights and introduce new ones for leaseholders by:

• Making it easier and cheaper for existing leaseholders to extend or buy their freehold.

• Increasing the standard lease extension term to 990 years for houses and flats to reduce the need for repeated extensions. Previously, lease extensions were capped at 50 years for houses and 90 years for flats.

• Excluding the marriage value (the increase in value once the lease is extended) when calculating the premium on lease extensions. This suggests that lease extensions will become far more affordable and accessible for homeowners.

• Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy their freehold mandated by the Leasehold Reform Act 1967.

• Scrapping the presumption that leaseholders will pay their freeholders’ legal costs when challenging poor practice.

• Removing the requirement to pay the freeholders’ costs when exercising enfranchisement rights

What are the other benefits to leaseholders?

Addressing long-standing concerns, the Act further aims to benefit leaseholders by:

• Standardising the format of service charge demands for transparency to the leaseholders.

• Granting rights of redress so that homeowners on private and mixed tenure estates have access to information on what charges they pay and the ability to challenge the reasonableness.

• Banning the sale of new leasehold houses (so that every new house will be freehold from the outset).

• Making it easier and cheaper for leaseholders to take over the management of their building, allowing them to appoint a managing agent of their choice.

Beth Norman Associate (FCILEX) in Commercial Property

Tel: 01227 768374

Email: bethnorman@girlings.com

• Setting a maximum time and fee for the provision of information required by a leaseholder from their freeholder on a sale (such as buildings insurance and financial records), making buying or selling leasehold property quicker and easier.

• In properties with a significant commercial component, the threshold for eligibility to jointly purchase the freehold of their building has been raised from 25% to 50% non-residential space.

• Curtailing the practice of freeholders or managing agents earning commissions from arranging insurance policies for leaseholders, limiting this to transparent administration fees only.

What about ground rent?

One key element of the Leasehold and Freehold Act which has not been included is the cap on ground rents. It was originally planned to reduce ground rents for existing leaseholders to zero. No regulations were mentioned when the Act passed and therefore the future of ground rents remains unclear.

When will the Act come into force?

The Government confirmed in the King’s Speech in July 2024 that they intend to act quickly. However, implementation will likely be phased in and will be subject to further consultations where secondary legislation may be required. It is unlikely the implementation will be complete until 2025/6.