The Leasehold & Freehold Reform Act
On Friday 24 May 2024 the government rushed the Leasehold & Freehold Reform Bill through parliament before it was dissolved ahead of the General Election on 4 July. Michael Gove, who originally pushed to update the ‘feudal’ leasehold system, stood down from his role as Housing Secretary, as well as Conservative MP.
As expected, the bill is a diluted version of what was initially promised in 2023. With regards to lease extensions of flats, we have simplified below the key points:
What is included in the Act & is proposed to come into effect in 2025/2026?
- Leaseholders will no longer pay marriage value if the unexpired lease term is less than 80 years
- Removing the requirement for tenants to pay the freeholder’s costs (unless the costs outweigh the premium)*
- Extending the lease term for flats by 990 years (instead of 90 years)
- Remove requirement to have owned a flat for 2 years
- Ban on creation of new leasehold houses
- A leaseholder will be able to buy out their ground rent without going through the lease extension process, although only if there are >150 years remaining
What has been excluded?
- Existing ground rent no longer to be removed
- Existing ground rent no longer to be capped, except for the purpose of lease extension calculations where ground rents will be capped at 0.1% of the long leasehold market value.
*It is likely that landlords will now challenge these points and claim human rights infringements.
Marie Bultitude, Associate and Registered Valuer at SHW, says: “Although the Bill has passed, we have no specific information with regard to the timeline of the new laws coming into effect.”
Commentators are suggesting 2025 or even 2026 before the Bill comes into practice. It has been discussed that some elements may take as long as 2028 to become law. A change in government may also affect the changes going forward.
Further down the line, the government plans to set fixed deferment rates and capitalisation rates that valuers use in the lease extension calculation. Depending on what rates are set, it may still be the case that in certain circumstances, premia may be higher than they are now. Until the fixed rates are decided, there remains little clarity on the effect of premia going forward.
Marie adds: “We are already receiving enquiries from leaseholders who have been holding out for further news and have 81 years remaining on their lease. In this situation, our advice would be to instruct your solicitor to serve the Section 42 Notice as soon as possible, to avoid the lease reducing below 80 years and the government delaying in implementing the changes.”