Leasehold Reform 2024: Navigating key changes and how they will affect you

Introduction

Leasehold reform has been a hot topic since the King’s Speech in November 2023. Fast forward to 24 May 2024, after the unexpected call for an early July General Election, the Leasehold and Freehold Reform Act 2024 (“the 2024 Act”) received Royal Assent. Now that the Act is law, what are the immediate consequences for you as a leaseholder?

Section 124 of Part 9 of the 2024 Act outlines the commencement provisions for all changes. The major amendments, particularly those related to leasehold enfranchisement, will be introduced as statutory instruments. These will come “into force on such day or days as the Secretary of State may by regulations appoint,” meaning there is no set date for their implementation. Current estimates suggest these changes will come into force between late 2025 and early 2026.

Key provisions to come

• Removal of the qualifying period - This change will eliminate the requirement for a leaseholder to have owned the property for two years before being eligible to extend their lease. This will be a welcome change to leaseholders.
• Introduction of 990 year term on statutory lease extensions - Increasing the term to 990 years from 90 years for leasehold flats and 50 years for leasehold houses, will reduce the frequency and cost of lease extensions for leaseholders.
• Abolishment of marriage value - This will aim to remove the extra cost incurred when extending a lease with less than 80 years remaining. The deferment rate is yet to be confirmed, with some surveyors commenting that if the deferment rate is lowered, this will lead to higher premiums for those who have longer leases; i.e. over 80 years.
• Scrapping the position that freeholder’s costs can always be recovered from the leaseholder on acquiring the freehold or extending the lease, and providing instead for such recovery only in certain limited circumstances as set out in the 2024 Act.
• Ban on creation of new leasehold houses: This reform, promised since 2017, aims to stop the creation of new leasehold houses, which have often subjected leaseholders to onerous ground rent provisions and inflated costs.

What will change in the near future?

Section 124 of Part 9 of the 2024 Act specifies that sections 113, 117, 118, and 119 will “come into force at the end of the period of two months beginning with the day on which this Act is passed.” Therefore these sections will take effect on 24 July 2024. Let’s have a look at what these sections provide for:

Section 113 is an amendment that modifies the draconian remedy for non-payment of rent charges, by introducing protective measures, which include notification requirements before taking enforcement action for non-payment of rent charge. The provisions provide relief to lenders by ensuring a lender is notified prior to a rent charge owner taking enforcement action which can include taking possession of the property and creating a lease, and thereby giving the lender an opportunity to rectify any breach or remedy any non-payment of rent charge.

Section 117 creates an exception to the leaseholder protection from legal and professional costs relating to liability for relevant defects under the Building Safety Act 2022 (the “BSA 2022”). Section 117 permits a resident management company to recover such costs, if the lease permits legal and professional costs so incurred to be recovered. This change will be welcomed by leaseholder owned management companies.

Section 118 repeals section 125 of the Building Safety Act 2022 (the “BSA 2022”). Section 125 of the BSA 2022 enables a court to grant a remediation charging order against a company or partnership associated with a freehold company which has been wound up. There is no explanation as to why this provision has been abolished.

Section 119 introduces a new section to the BSA 2022, which imposes a duty on an insolvency practitioner in relation to an insolvent freehold company where the building requires relevant remediation, to notify a local authority and fire and rescue authority of such insolvency.

One is left somewhat puzzled as to why these provisions are to be effective come 24 July 2024, when some key provisions which would have eased the burden of leaseholders immediately are to be implemented later.

What was left behind?

Due to the expedited nature of the bill's passage, some provisions were inevitably left out. The most notable omission is the suggested cap on ground rent. Escalating ground rents present a huge issue for some leaseholders, and affect marketability and morgageability of some leasehold flats and houses. The Government had launched a supplementary ground rent consultation offering five different options, but the snap election call likely prevented the results and report from being completed in time. Whether this issue will be revisited depends on the outcome of the upcoming election.

Should a leaseholder wait to extend their lease?

This will very much depend on the circumstances of each case. Faced with a reducing lease term, and the uncertainty of when the statutory instruments will be passed to make the 2024 Act effective, a leaseholder may well decide to proceed now than have the lease term reduce further.

For those facing a large premium due to marriage value being taken into account in the calculations because the lease is below 80 years, they may consider waiting in order to benefit from more favourable capitalisation and deferment rates; albeit in the absence of the rates being known, there is no guarantee that the rates will lower the premium payable.

Further, if a leaseholder is selling or refinancing, they may not have the opportunity of waiting for the 2024 Act to become effective.  

For those leaseholders currently going through a statutory claim, in considering whether they should abandon the claim and wait for the 2024 Act to be effective, they should take into account their abortive costs (they will be liable for the Landlord’s reasonable legal and valuation fees including their own), and how long they will need to wait for the 2024 Act to be effective.

Summary

Despite the rush, the 2024 Act has largely passed in the spirit it was intended. Most of the main amendments proposed in the King’s Speech and subsequent speeches by Mr. Gove have survived the legislative process. While not perfect and likely requiring further amendments, the 2024 Act will bring some positive changes as early as July this year, with more substantial reforms expected in the next 18-24 months.

For leasehold enfranchisement advice, please call our Leasehold Enfranchisement & Management Services team today on 0113 207 0000.