The Leasehold and Freehold Reform Act 2024

The Leasehold and Freehold Reform Act 2024 received Royal Assent in May 2024.  The Act includes substantial changes for landlords, leaseholders and management companies with the aim of giving homeowners more rights, power and protections over their homes and making it cheaper and easier for people to extend their lease or buy their freehold. In short, the aim is to ensure leaseholders pay less to have more security in respect of their home.

That said, the provisions relating to lease extensions are not yet in force, and secondary legislation is needed to activate the key provisions.

Reasons for reform

There has been increasing pressure on the government to reform the leasehold and freehold system due to concerns about the complexities, costs and imbalance of power within the current system.

The Act

The Act will bring in substantial changes. These include:

• Rights for tenants to acquire their freehold and an ending of the requirement for them to pay the freeholder’s costs when making an enfranchisement claim.
• The ending of leasehold sales for new houses. They will all be sold on a freehold basis.
• Permitting lease terms to be extended by 990 years for both houses and flats. Previously the limit was 50 years for houses and 90 years for flats.
• Ending the two-year ownership requirement for leaseholders wishing to extend their lease or purchase their freehold.
• Giving leaseholders greater transparency over the service charges by making freeholders or managing agents issue bills in a standardised format that can be easily understood and or challenged.
• Regulating the way in which payments for lease extensions are calculated.
• Relaxing restrictions that prevented leaseholders from assuming management of a mixed-use site or acquiring the freehold if more than 25% of the floor space was non-residential. The threshold has now been raised to 50%, which means more leaseholders will be able to exercise the right to manage or seek collective enfranchisement.
• Banning commissions made on insurance by freeholders and/or managing agents.
• Extending access to redress schemes for leaseholders to challenge poor practice. The government will require freeholders, who manage their building directly, to belong to a redress scheme so leaseholders can challenge them if needed. Managing agents are already required to belong to a scheme.

Comment

With the announcing of a general election in July 2024, it was somewhat of a surprise that the Act received Royal Assent before Parliament was dissolved and under the previous government. However, the main provisions of the Act will not have effect until secondary legislation has been passed. The new Labour government has pledged to introduce the reforms as soon as possible. 

The Act contains some amendments to the Building Safety Act 2022, and these came into force in July 2024. However, as yet there has been no indication of when the other provisions of the Leasehold and Freehold Reform Act will come into effect but it is generally expected that it will probably not be until 2025/2026.

The Act does not include a cap on ground rents for existing leases. This was always a controversial area and may be revisited by the new government.

All in all, the Act creates some significant changes for both landlords and tenants, although clarity and detail is still needed. We will keep a watching brief and keep you informed of any developments.

In the meantime, if you would like to discuss any of the matters raised in this post, please get in touch.

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