The Freehold and Leasehold Reform Act 2024 becomes law

Homeowners across England and Wales are expected to receive more rights, powers, and protections over their homes under the Leasehold and Freehold Reform Act 2024 which became law last month.

The Act includes substantial changes for landlords, leaseholders and management companies. Property law expert Eleanor Longworth, based in WHN’s Bury office, outlines the intended objectives of the reforms.

What is a leasehold?

In England and Wales, most people own their homes on either a freehold or leasehold basis.

If someone owns the freehold of their property, they also own the land on which it stands, and they have significant control over their home.

Leasehold, however, means that you have a lease of your home for a certain period. You usually need to pay a rent and possibly other charges to your landlord. There may also be restrictions on what you can do with the property.

The government has been under pressure to change the law for some time, with campaigners arguing that the current system is complicated and open to abuse.

Reforms to the Act were intended to:

• prohibit the grant or assignment of certain new long residential leases of houses
• amend the rights of tenants under long residential leases to acquire the freeholds of their houses, to extend the leases of their houses or flats, and to collectively enfranchise or manage the buildings containing their flats
• give such tenants the right to reduce the rent payable under their leases to a ‘peppercorn’
• regulate the relationship between residential landlords and tenants
• regulate residential estate management
• regulate rent charges
• amend the Building Safety Act 2022 in connection with the remediation of building defects and the insolvency of persons who have repairing obligations relating to certain kinds of buildings.

How will homeowners benefit from the Freehold and Leasehold Reform Act 2024?

According to the government report announcing that the Act officially received Royal Assent on May 24, 2024, the benefits to homeowners are outlined below:

• It will be cheaper and easier for people to extend their lease or buy their freehold, so leaseholders pay less to have more security in their home.
• The standard lease extension term will increase to 990 years for houses and flats (up from 50 years in houses and 90 years in flats), so leaseholders can enjoy secure ownership without the hassle and expense of future lease extensions.
• Leaseholders will gain greater transparency over service charges. Freeholders or managing agents must issue bills in a standardised format that can be more easily scrutinised and challenged.
• It will be cheaper and easier for leaseholders to take over the management of their building, enabling them to appoint the managing agent of their choice.
• It will be cheaper for leaseholders to exercise their enfranchisement rights as they will no longer have to pay their freeholder’s costs when making a claim.
• It will extend access to redress schemes for leaseholders to challenge poor practice.
• The government will require freeholders, who manage their building directly, to belong to a redress scheme so leaseholders can challenge them if needed – managing agents are already required to belong to a scheme.
• The Act will make buying or selling a leasehold property quicker and easier by setting a maximum time and fee that for home buying and selling information.
  Homeowners on private and mixed tenure estates will gain comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are.

The government announcement claims the Act will further benefit leaseholders by:

• Scrapping the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges.
• Banning opaque and excessive buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.
• 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.
• 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.
• Properties made up of freehold and leasehold elements will have equal rights ensuring that access to redress schemes for challenging poor landlord/managing agent practices is provided.

What did the Act not do?

As part of the government consultations a cap on ground rents was proposed, however, this faced fierce resistance from pension funds. The Act does not include a cap on ground rents payable under existing leases.

There was also discussion concerning restrictions on a landlord’s ability to forfeit a lease however, this did not make it into the Act. A landlord is still able to forfeit a lease.

Will the Act make a lease extension cheaper?

The Act introduces new valuation methods. Notably it is intended to remove the requirement to pay marriage value and prescribe the rates used for the valuation calculations.

Marriage value is currently payable if a lease has less than 80 years left to run and can significantly increase the premium.

If you have a lease with less than 80 years remaining or have a high ground rent it could make the premium cheaper.

However, as it stands, the valuation rates used in calculating the premiums payable when extending a lease or buying the freehold have not been set. It is, therefore, unclear whether the cost will go up. For those with a lease with more than 80 years left to run or at a low ground rent, the Act could make it more expensive. It remains to be seen. It depends upon what is implemented under the new government.

Should I wait before I extend my lease or buy the freehold?

Although the amendments to the Building Safety Act 2022, will come into force on July 24, 2024, the remainder of the Act will need to be brought into force by statutory instrument by the next government. This is currently anticipated in 2025/2026. It is going to be some time until the Act takes effect.

It your lease has less than 80 years left to run it could be in your interests to wait because the abolition of marriage value could benefit you however, your circumstances, such as a pressing need to sell, may mean that it is in your interests to extend your lease sooner rather than later.

Each homeowner’s circumstances are different. The decision as to when to extend your lease or buy your freehold will differ person to person, household to household.

The Act introduces significant changes for the benefit of leaseholders however, work is still to be done and it is likely to be a number of years until we have clarity on the extent of the changes, in particular to the valuation criteria.

It is important that leaseholders carefully consider their options together with the potential advantages and disadvantages of waiting or extending their lease now.

Eleanor Longworth specialises in residential long leasehold dispute resolution matters, acting on behalf of landlords, management companies and leaseholders. For further advice on acquiring a freehold, extending your lease or any other leasehold dispute resolution matter, call Eleanor Longworth on 0161 761 4611 or by email  eleanor.longworth@whnsolicitors.co.uk