14 October 2024
The Leasehold and Freehold Reform Act 2024 (“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 scrap 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 if they want to. Leaseholders in some buildings are barred from taking over the management of the site or buying its freehold if more than 25% of its floor space is commercial – such as shops or offices on the ground floor. But this limit will now be increased to 50% to enable more homeowners to access Right to Manage or the right to a collective enfranchisement.
When will it apply?
The Act became law on 24/05/24 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. Further consultation may be required before this happens so we expect the changes could take several months before they are in force. In the meantime the existing leasehold laws will continue to apply.
What’s in the Act?
The Act – strengthens existing, and introduces new, consumer rights for homeowners by:
- Making it cheaper and easier for people to extend their lease or buy their freehold so leaseholders pay less to have more security in their home.
- Increasing the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats), so leaseholders can enjoy secure ownership without the hassle and expense of future lease extensions.
- Giving leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged.
- Making it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent 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 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.
- Making buying or selling a leasehold property quicker and easier by setting a maximum time and fee that for home buying and selling information.
- Granting homeowners on private and mixed tenure estates comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are.
The Act will further benefit leaseholders by:
- Scrapping the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges.
- Banning opaque and excessive buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.
- Banning 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.
- Removing the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.
- A new legal right to buy out the ground rent without extending the lease at the same time.
A new Leasehold and Commonhold Reform Bill
In the King’s Speech on 17th July 2024, the Labour government promised draft legislation in 2024/25 to bring the feudal system of leasehold to an end and to reinvigorate commonhold.
The draft legislation will include:
- Enacting remaining Law Commission recommendations to bolster leaseholders’ rights to extend their lease and the Right to Manage.
- tackle unregulated and unaffordable ground rents which can rapidly escalate and make it difficult for leaseholders to sell, even if priced correctly. The government estimates that 86 per cent of leaseholders pay a ground rent, averaging almost £300 a year in England.
- removal of the threat of forfeiture so that leaseholders are protected from losing their homes for potentially small unpaid debts such as ground rent.
- restrict the sale of new leasehold flats by requiring commonhold to be the default tenure. The government will consult on the best way to achieve this and will produce a new comprehensive legal framework setting out how commonhold will work in practice.
- consult on the best way to address the injustices of ‘fleecehold’ private housing estates and unfair maintenance costs. This will go further than the new protections included in the Leasehold and Freehold Reform Act 2024. There are as many as 1.75 million homes on private estates and this continues to grow. According to the Competition and Markets Authority, homeowners pay around £350 a year in new build management charges.
Further information: