A landmark new law was passed at the end of May that promises to bring significant changes to owners of leasehold properties.
The Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, the final Bill to be passed before Parliament is dissolved ahead of the general election on 4 July.
Although some believe the legislation has suffered from being passed in the “wash up” period, thereby failing to receive the time or scrutiny it deserved, the Act remains an important development for the home ownership system in England and Wales.
In this blog, our experienced Lease Extension solicitors consider the main provisions of the Leasehold Reform Act and what it means for leaseholders.
Difference Between Leasehold and Freehold
There are two main types of home ownership in England and Wales.
- This is where you own the building, including the land on which it stands, and are responsible for its maintenance. Houses are generally freehold.
- Owners of leasehold properties own the property for a set period of time (the ‘term’), as specified in a lease agreement with their landlord. When the term ends, the ownership of the property reverts to the landlord.
The landlord is generally responsible for the maintenance of the communal areas and charges the leaseholders a service charge. Sometimes a ground rent is payable to the landlord as well. Flats and maisonettes are usually leasehold.
In some cases, a leaseholder owns a leasehold flat or maisonette and also owns a share of the freehold. This is usually where a company has been formed to own the freehold and some or all of the owners of flats or maisonettes in the building own a share in that company.
The leasehold system of home ownership has been criticised for not affording leaseholders the same rights, protections and security as owners of freehold properties.
Leaseholders are often subject to hefty service charges, soaring ground rents and lack of involvement in decisions regarding their property, such as whether they may keep pets, are allowed to sublet their property or may run a business from home.
Remortgaging a property with a short lease can prove problematic, and leasehold properties can be harder to sell.
While leaseholders can apply to extend their lease (through a process known as ‘enfranchisement’), rules governing lease extensions have been accused of being outdated, with leaseholders often having to shoulder excessive costs.
Background to the Leasehold and Freehold Reform Act 2024
The Conservative government promised to reform leasehold law in England and Wales, by “improving consumer choice” and “cracking down on unfair practices” to give leaseholders “more rights, power and protections over their homes”.
Introducing the Leasehold and Freehold Reform Act 2024 is the second part of this pledge, with the legislation following on from the Leasehold Reform (Ground Rent) Act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales.
Whilst many hoped that the combined legislative package would overhaul the entire system by abolishing the leasehold system entirely, the Leasehold Reform Act doesn’t go this far. Similarly, a cap on ground rents for existing leaseholders and banning forfeiture of long residential leases are also not covered by the Act.
However, despite these omissions, the Leasehold Reform Act represents an important legislative development that includes various changes and benefits for the owners of leasehold properties.
What the Leasehold Reform Act Means for Leaseholders
The Act strengthens existing, and introduces new, consumer rights for homeowners in various ways, including by:
- making it cheaper and easier for people to extend their lease or buy their freehold
- increasing the standard lease extension term to 990 years for houses and flats (up from 50 years for houses and 90 years for flats)
- giving leaseholders greater transparency over their service charges by making landlords and managing agents issue bills in a standardised format so that they can be more easily scrutinised and challenged
- making it easier and cheaper for leaseholders to take over the management of their building, allowing them to appoint managing agents of their choice
- making it cheaper for leaseholders to exercise their enfranchisement rights as they will no longer have to pay their freeholder’s costs when making a claim
- extending access to redress schemes for leaseholders to be able to challenge poor practice
- making buying or selling a leasehold property quicker and easier by setting a maximum time and fee for home buying and selling information
- granting homeowners on private and mixed tenure estates comprehensive rights of redress.
The Act also:
- extinguishes the presumption that leaseholders should pay their freeholders’ landlord’s legal costs when challenging poor practice
- bans opaque and excessive building insurance commissions for landlords and managing agents
- abolishes 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
- removes the requirement for a new leaseholder to have owned their flat for two years before they may apply to extend their lease or to have owned their house for two years before they may apply to buy their freehold.
Although the Leasehold Reform Act has been passed, it is not yet in force. When it will be rolled out depends on the result of the upcoming general election on 4 July 2024, with most reforms expected to come into effect in 2025 or 2026.
Lease Extension Solicitors Blackheath
If you are hoping to increase the term of your lease by way of a lease extension, our solicitors at Beverley Morris & Co. can help.
Our residential property lawyers are very experienced in lease extensions and will guide you through the process involved to make it as smooth and stress free as possible.
Whether you should look to extend your lease now or wait for the new legislation to come into force is not straightforward, and specialist legal advice is vital.
If you are considering extending a lease on a residential property, our specialist residential lease extension solicitors at Beverley Morris & Co. can explain precisely what is involved. We will advise the best course of action for your situation and help and support you at every stage.
To speak to our Lease Extension solicitors today, call us on 020 8852 4433 or email enquiries@beverleymorris.co.uk.