The Leasehold and Freehold Reform Act 2024 – welcome reform or missed opportunity?

Posted: 05/06/2024

The Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, having been rushed through prior to the prorogation of Parliament.

The act is intended to make long term changes to homeownership for millions of leaseholders, providing more rights, powers and protections to homeowners.

The key elements of the act:

Leasehold houses:

Bans the sale of new leasehold houses (except in exceptional circumstances). Unsurprisingly, permitted leases include shared ownership leases.

Lease extensions:

Lease extension term increased to 990 years for both houses and flats.
Removal of the two-year ownership criteria before qualifying for a lease extension/enfranchisement.
Removing marriage value from the premium calculation and new valuation methods.
Right for leaseholders with a long lease to buy out their ground rent without extending the lease term or buying the freehold.
Removed liability for freeholder’s costs – with limited exceptions, each party will now pay their own costs.
For the purpose of valuations, ground rents will be capped at 0.1% of the value of the property.

Enfranchisement (buying the freehold):

Easier and cheaper to buy the freehold.
Removed liability for freeholder’s costs – with limited exceptions, each party will now pay their own costs.
Increases the ‘non-residential limit’ to 50% for collective enfranchisement (increased from the current 25% limit).

Right to Manage (RTM):

Making RTM easier and more affordable.
Increases the ‘non-residential limit’ to 50% for RTM (increased from current 25% limit).
Removed liability for freeholder’s costs – with limited exceptions, each party will now pay their own costs.

Service charge:

Giving leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged.
Landlords will be required to publish a schedule of their administration charges, and without such a schedule, administration charges are not recoverable from leaseholders.
Granting homeowners on private and mixed tenure estates comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are.

Home buying and selling:

Implementing a maximum time and fee for providing home buying and selling information by landlords when a tenant is selling their property.
Regulations will specify what information a sales information request will cover.

Rentcharges:

Right to take possession/grant a lease under s121 of the Law of Property Act 1925 for unpaid historic rentcharges has been removed. At present this does not apply to modern estate rentcharges and so falls far short of the calls to repeal s121.

Shared ownership:

Shared ownership leaseholders to obtain lease extension rights (but not the ability to acquire the freehold other than via final staircasing).

Buildings insurance:

Ban on excessive buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.

What has not been included?

Whilst the above gives a summary of what has been included, there is much talk in the sector about what has not; for example:

Abolishment of leasehold – there have consistently been calls from the media and the public (amongst others) to scrap leasehold as a tenure altogether (rightly or wrongly) and replace with commonhold. However, this has not been included.
Cap on ground rents – the act does not include any caps on ground rents, which was widely expected following consultation.
Regulation on estate charges – the act does not address the lack of regulation relating to estate charges in respect of estate service charges paid by freeholders, or regulation of the management companies/managing agents.
Rent charges – although the rights of s121 of the Law of Property Act 1925 (ie the ability to take possession/grant a lease for non-payment) have been scrapped for historical rent charges, this does not extend to estate rent charges (used to enable estate service charges to be charged).

When do the changes apply?

This is the million-dollar question! With the exception of minor changes to the Building Safety Act and the Rent Charges Act, the remaining provisions will be left to the next government to implement via statutory instrument.

However, there is still much to work out, such as clarifying the valuation mechanism for lease extensions, leaving the leasehold world largely in limbo until implementation of the act, with estimates expecting this to take place in 2025/2026.

Summary

Whilst many elements of the act are very welcome for leaseholders, there are concerns that this has been rushed through Parliament without proper debate or consideration. The act lacks many reforms which were hoped would remedy some of the flaws which exist with leasehold property (or freehold subject to service charges), and many which have been included have not yet been fully thought through.

The sector will be watching with great interest as to how the new government implements this, and whether any additional elements of leasehold reform are addressed; we can only hope the act is implemented quickly to avoid uncertainty or the sector being left in limbo.

Registered providers and landlords will need to ensure they keep up to date with the changes and amend their working practices to ensure they are compliant with the new elements of the act.

If you would like to discuss any element of this alert or how Penningtons Manches Cooper can help, please contact Adam Crawford or Linda Storey.

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