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The Leasehold and Freehold Reform Act represents both opportunities and challenges for landlords. Having been passed by Parliament prior to its dissolution ahead of the General Election, it has been rushed through during its wash-up period. Many items have been left to secondary legislation—which will occur after a new Government has been elected.
The Act received Royal Assent and was officially passed into law in May 2024.
What is the Leasehold and Freehold Reform Act?
It introduces several new reforms. Its aim is to strengthen existing consumer rights for homeowners and introduce new ones.
Changes to existing leasehold and freehold laws landlords should know
1. Increased standard lease extension terms
Leaseholders can now secure ownership without the expense and worry of future lease extensions, as the standard lease extension term has been increased to 990 years. This applies to houses and flats, with the figure rising from 50 years and 90 years, respectively. It will significantly reduce the need for repeated extensions.
Changes to lease extension activity may not come into effect until 2025/26 because valuation rates are not dictated within the bill. The valuation rates determine the cost of lease extensions and freehold purchases. Currently, they are set at market value and will most likely require secondary legislation.
2. Greater transparency over service charges
Making freeholders or managing agents issue bills in a standardised format will give leaseholders better transparency over their service charges and allow them to scrutinise bills more easily.
It forces managing agents to show how bills have been calculated with a full breakdown of costs; therefore, leaseholders can challenge the final result if they feel it is incorrect. This effectively means the freeholder or managing agent will have to justify what their charges are for.
3. Scrapped legal costs for leaseholders on behalf of freeholders
Currently, the presumption is that leaseholders will pay for their freeholders' legal costs when challenging unreasonable charges or poor practice. This acts as a deterrent when leaseholders want to challenge their service charges, so the decision has been made to scrap this.
This could raise the number of cases where a leaseholder wishes to challenge either poor practice or unreasonable charges.
4. Removed requirement for a new leaseholder to have owned their house or flat for two years before they can buy/extend their lease
As part of the reforms, the requirement for a new leaseholder to have owned their house or flat for two years before extending their lease or buying a freehold has been scrapped.
This may take some getting used to as landlords with existing leasehold properties adapt to these new rules. It could lead to increased administrative tasks, and there could be much more to consider when leasehold properties are sold.
5. Banned the sale of new leasehold houses other than in exceptional circumstances
Every new house in England and Wales will be freehold from the outset, other than in exceptional circumstances. This is because the reforms have banned the sale of new leasehold houses.
Ultimately, this decision will vastly simplify property transactions and remove the potential for complications with leasehold properties. It addresses the confusion and costs often associated with leasehold ownership.
Secondary legislation
Much of this act is being left to secondary legislation. Secondary legislation refers to laws created by ministers or other bodies to fill in details of primary legislation. In most cases, it is used to set the date for when provisions of an act will come into force as law. It can also be used to amend existing legislation.
This could mean further reforms, such as capping ground rents, could still be implemented. However, this is dependent on the new government's plans and priorities.
Final thoughts
These changes are among many others implemented within the Leasehold and Freehold Reform Act. They address enfranchisement, redress schemes, handling fees, leaseholders' management of their buildings, and making it cheaper to extend leases.
These measures will become effective once the next government implements them and after establishing secondary legislation. However, further changes will likely require consultation, so landlords and leaseholders should not expect the Act to become effective before 2025. Even then, reforms will be implemented in stages.
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