It’s estimated that there are approximately 4.86 million leasehold homes in England, of which 69 percent are flats and 31 percent are houses.
Leasehold reform has been a hot topic since King Charles’ speech in November 2023. Fast forward to May 2024 and the unexpected call for a General Election led to the Leasehold and Freehold Reform Act 2024 (“the 2024 Act”) receiving Royal Assent.
Anushka Nicholas, Head of the Leasehold Enfranchisement team at Blacks Solicitors, discusses the Leasehold and Freehold Reform Act 2024 in more detail, along with highlighting the consequences of the Act for leaseholders.
What is a leasehold?
If you own a leasehold house, then you own the house but not the land it sits on. In short, a leasehold is holding a property on a lease for a fixed term, with an annual ground rent fee reserved. It is a form of home ownership that gives the leaseholder exclusive rights to live in a property for a fixed number of years, known as a term.
Introduction of the Leasehold and Freehold Reform Act 2024
While the 2024 Act has now become law, the entirety of the act won’t be fully introduced immediately. A minimal number of amendments will come into force on 24 July 2024.
When it is fully introduced, the 2024 Act will feature major amendments, particularly those relating to leasehold enfranchisement, which will be introduced as statutory instruments. Current estimates suggest these changes will come into force at some point between late 2025 and early 2026.
Some of these major amendments will encompass a number of key provisions, including;
- Removal of the qualifying period - This change will eliminate the requirement for a leaseholder to have owned the property for two years before being eligible to extend their lease - a welcome change for leaseholders.
- Introduction of 990 year term on statutory lease extensions - Increasing the term to 990 years from 90 years for leasehold flats and 50 years for leasehold houses, will reduce the frequency and cost of lease extensions for leaseholders.
- Abolishment of marriage value - This will aim to remove the extra cost incurred when extending a lease with less than 80 years remaining. The deferment rate is yet to be confirmed, with some surveyors commenting that if the deferment rate is lowered, this will lead to higher premiums for those who have longer leases; i.e. over 80 years; a change not likely to be welcomed by owners of longer leases if this is indeed the case.
- Eliminating freeholder recovery costs - Scrapping the position that freeholder’s costs can always be recovered from the leaseholder on acquiring the freehold or extending the lease, and providing instead for such recovery only in certain limited circumstances as set out in the 2024 Act.
- Ban on creation of new leasehold houses - This reform, promised since 2017, aims to stop the creation of new leasehold houses, which have often subjected leaseholders to onerous ground rent provisions and inflated costs.
The amendments coming into force on 24 July 2024 include sections 113, 117, 118 and 119, which provide for the following;
- Section 113 - This is an amendment that modifies the remedy for non-payment of rentcharges, by introducing protective measures, which include notification requirements to lenders having a charge on the property before taking enforcement action for non-payment of rentcharges.
- Section 117 - This creates an exception to the leaseholder protection from legal and professional costs relating to liability for relevant defects under the Building Safety Act 2022 (the “BSA 2022”). Section 117 permits a resident’s management company to recover such costs, if the lease permits legal and professional costs incurred to be recovered.
- Section 118 - This repeals section 125 of the BSA 2022 (the “BSA 2022”), which enables a court to grant a remediation charging order against a company or partnership associated with a freehold company which has been wound up.
- Section 119 - This introduces a new section to the BSA 2022, which imposes a duty on an insolvency practitioner in relation to an insolvent freehold company, where the building requires relevant remediation, to notify a local authority and fire and rescue authority of such insolvency.
In summary
Despite the rush, the 2024 Act has largely passed in the spirit it was intended. Most of the main amendments proposed in King Charles’ speech have survived the legislative process.
The most notable omission is the suggested cap on ground rent, which didn’t make it into the 2024 Act. Escalating ground rents present a huge issue affecting marketability and mortgageability of some leasehold flats and houses. The hope that the new statute would provide some redress in this regard has gone unfulfilled, despite the Government’s supplementary ground rent consultation offering five different options.
Whilst not perfect and likely requiring further amendments, the 2024 Act will bring some positive changes as early as July this year, with more substantial reforms expected in the next 18-24 months.
Anushka Nicholas, Head of the Leasehold Enfranchisement team at Blacks Solicitors
