Leasehold reform becomes law

Leasehold and Freehold Reform Act Passes – Here’s What Leaseholders and Freeholders Need to Know

28 May 2024 | Written by Innovus

Asset Management

The Leasehold and Freehold Reform Act completed its journey through Parliament and received Royal Assent on May 24, 2024, officially becoming law. The act introduces several significant changes to the leasehold system in England and Wales that both leaseholders and freeholders should be aware of, although further legislation will be required for many provisions to take effect.

Changes for Leaseholders

The headline change for leaseholders is the ability to extend a lease for up to 990 years, a major increase from the current 90 years (for flats). The act also abolishes “marriage value”, meaning leaseholders with less than 80 years remaining on their lease will no longer have to share the uplift in property value upon extending with their freeholder.

Other notable provisions affecting leaseholders include:

  • Removal of the 2-year ownership requirement before being eligible to extend or purchase the freehold
  • Standard format for service charge billing to allow easier scrutiny
  • Relaxed requirements for leaseholders to take over management of their building
  • Ban on new leasehold houses, with limited exemptions

“The passage of the Leasehold and Freehold Reform Act marks a significant shift in the landscape for freeholders and leaseholders alike,” said Felix Keen, Director of Asset Management at Innovus. “While we recognise the government’s intent to modernise the system and expand leaseholder rights, the full implications for freeholders remain to be seen until secondary legislation is passed and legal questions are resolved.”

“At Innovus, we are committed to closely monitoring the act’s implementation and helping our valued clients strategically navigate the changes to protect their investments and interests. Much remains to be clarified in the months and years ahead, but we will be there every step of the way to provide expert counsel and support.”

Impacts on Freeholders

For freeholders, the most significant change is the future loss of marriage value when leaseholders with short leases extend. Marriage value can currently make up a significant portion of extension premiums. The act does not cap ground rents for existing leaseholders as some earlier proposals suggested.

The act also increases leaseholders’ abilities to challenge service charges and gain control over building management. However, the government opted not to adopt certain recommendations around licensing and regulating property managers.

Implementation Timeline

While the Leasehold and Freehold Reform Act is now officially law, many of the key changes will not take effect immediately. Secondary legislation is required to implement provisions like abolishing marriage value and setting new formulas for extension and enfranchisement premiums.

The government’s impact assessment suggests this additional legislation likely won’t be in place until 2025 or 2026. Some freeholder groups have also indicated they may challenge reforms they believe infringe upon their property rights, which could further affect the timeline.

Industry Reactions

Reaction to the Leasehold and Freehold Reform Act has been mixed. Leasehold groups have largely praised the changes as a step forward, but noted the act falls short of delivering all of the reforms originally proposed. Freeholder groups meanwhile have raised concerns about the balance of the legislation and the potential for unintended consequences.

Looking Ahead

The Leasehold and Freehold Reform Act ushers in the most significant changes to the leasehold system in years. While the full effect won’t be felt until additional legislation is passed, the act sets a new trajectory for the balance between freeholder and leaseholder rights.

As always, both leaseholders and freeholders should consult with qualified surveyors and solicitors to understand exactly how and when the act’s changes may impact their unique circumstances. Innovus will continue to closely monitor and report on the implementation of the Leasehold and Freehold Reform Act and any associated legislative or legal developments.

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