It was long speculated that the Leasehold Reform Bill would hit the statute books in advance of the next general election. With the snap election having been called, we saw the Bill pass the House of Lord’s third reading and consideration of amendments on the 24th May, leaving only the foregone conclusion of Royal Assent.

The Bill had been the subject of numerous amendments. The most recent of which being tweaks to the subject of indemnity of statutory costs for lease extensions and enfranchisement, effectively providing for possible future exceptions in the form of amendments via a regulations (secondary legislation made by the Secretary of State). These open opportunities have been widely criticised as leaving an inadequate level of certainty on such topics.

Moreever this method is also used for some important calculatory mechanisms. Such mechanisms are highly influential, such as the setting of capitalisation and deferment rates which greatly impact the ‘Premium’ payable for Freeholds (via Enfranchisement) as well as lease extensions.

Many, including those within the House of Commons have stated, quite fairly, that the progress of the bill’s movement through parliament has been rather rushed and haphazard, and has not stood sufficient parliamentary scrutiny.

However it is undeniable that the Act will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges. The Act will also remove barriers for leaseholders to challenge their landlords’ unreasonable charges at Tribunal.

It will further ban the sale of new leasehold houses other than in exceptional circumstances, end excessive buildings insurance commissions for freeholders and managing agents, and remove the requirement for a new leaseholder to have owned their house or flat for two years before they can buy or extend their lease.

The new powers also grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders, and equivalent rights to transparency over their estate charges, and help more leaseholders take over the management of their property should they wish. Leaseholders who previously could not exercise the Right to Manage or purchase their Freehold due their building containing over 25% non-residential areas and therefore were ineligible, can now do so thanks to the increasing of this threshold to 50%.

Most significantly, and most controversially, the removal of the ‘marriage value’ component of Freehold and Lease Extension calculations, will account for a significant transfer of wealth from landlords and to tenants, estimated in the billions (approximately £6.6-7.1 billion pounds). Despite this there are campaigners that believe the Act has not gone far enough, specifically as the capping of existing ground rents is absent from the legislation despite being one of the aims that dates back to the law commission reports. It is worth noting also that the Renters Reform Bill was unable to reach a similarly conclusive stage compared to the Leasehold Reform Bill ahead of the next General Election.

In respect of the Leasehold and Freehold Reform Act, there is still some unknowns, particularly as to the commencement date for when the legislation comes into force. There were predictions made within the House a Lords a few weeks ago that estimated that this may be as late as next year (2025). We will be certain to report once more is known.

Parliamentary reforms to the leasehold legislation has been in the works for some time, since the government first announced on 21 December 2017 their intention to address many of the perceived imbalances within the law, in particular the balance of power between Landlords and their Tenants of long leases.  The following government article details the history of the initiative.

We have already seen the one such reform being brought into force (see our Ground Rent Act 2022 article), but what is on the horizon?

There have been certain commitments made by the government, however there is much speculation as to how much of it will be brought into force and there are a number of proposals that are considered quite controversial.

Please see our column on “Leasehold Reform” where we provide our take on each of the proposals.

One of the most notable is the abolition of “marriage value”. This represents an formulaic element within the prescribed method of calculation for both Lease Extension and Enfranchisement Premiums (see our guidance pages for an explanation of what these are). In essence, the factor is applicable when calculating the value or of the Landlord’s asset whenever carrying out either of these acquisition claims, and it applies an additional sum payable in respect of any lease that has fewer than 80 years remaining.

Marriage value can represent a significant sum of money, especially in the situation of a Freehold acquisition in which the leasehold flats within have very short leases.

Other significant changes:

For lease extensions:

For Right to Manage and Enfranchisement:

Reintroduction of Commonhold

It will be interesting to see on how such measures shall be brought into force, if at all.

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