The Leasehold And Freehold Reform Act 2024

Introduction

The Leasehold and Freehold Reform Act 2024 has become law. Lauded as one of the most significant reforms to the leasehold system for a generation, the Act will increase the rights of approximately 5 million leaseholders in England and Wales.

Its provisions will be implemented by secondary legislation, anticipated to take place in stages between 2025 and 2026.

The new Act amends both the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, affecting both new and existing leases.

Key reforms

The Act will be:

• Increasing the lease extension term to 990 years for flats and houses: s 33.
• Removing the requirement that a leaseholder own their property for two years before they can extend their lease or buy their freehold: s 27.
• Making it cheaper and easier for leaseholders to extend their leases or buy their freeholds.
• Changes to the valuation method for collective enfranchisement by leaseholders.
• Making it easier and cheaper for leaseholders to take over their building’s management and appoint the managing agent of their choice.
• Collective enfranchisement for more mixed-use buildings: s 29.
• Greater transparency over service charges.
• Changes to building insurance costs.
• Banning the sale of leasehold houses, so every new house in England and Wales will be freehold from the outset.
• Abolishing marriage value when unexpired lease terms are below 80 years or the ground rent is above 0.1% of the property's value.

Missed opportunities

The Act will not:

• Cap ground rent for leases granted on or before 30 June 2022. It was hoped to be at £250 per year, but this provision did not become statute. The Leasehold Reform (Ground Rent) Act 2022 already ended ground rents for all new leases granted on or after 30 June 2022.
• Abolish forfeiture, which allows a landlord to repossess a flat for certain breaches of the lease, including when a leaseholder owes just £350. 
• Put commonhold in the driving seat. Despite the government describing leasehold as an outdated feudal system that needs to go, due to a lack of parliamentary time, commonhold remains disliked by freeholder investors and lenders alike. However, if a Labour government is elected, Angela Rayner, Shadow Secretary of State for Levelling Up, Housing and Communities has promised it will make commonhold the default tenure for all new properties.

Implementation

Provisions in the Act, such as regulation of remedies for rent charge arrears, recovery of litigation costs in service charge disputes, and certain amendments relating to the Building Safety Act, will come into force on 24 July 2024: s 124.

The other provisions will be implemented as the Secretary of State appoints by way of statutory instruments.

In conclusion

Despite receiving Royal Assent on 24 May 2024, the main provisions of the Act are not yet in force.

The anticipated timescale for passing the statutory instruments is between 2025 and 2026, subject to what the newly elected government may or may not prioritise.

This new legislation will undoubtedly create greater parity between the rights of leaseholders and landlords, but more innovative reform is required to end uncertainty and bring commonhold into the dominant position.