The Leasehold and Freehold Reform Act has now become law.

posted by daniel@lease-advice-bureau.co.uk
Date:  25/05/2024
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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.

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