Out-Law News 3 min. read

Leasehold and Freehold Reform Act becomes UK law but ‘further detail required’

Leasehold and Freehold Reform Act receives Royal Assent but most of the provisions will not come into force without secondary legislation, which will now be the task of a new government.

The Leasehold and Freehold Reform Act 2024 received Royal Assent on Friday 24 May on the last day of the so-called ‘wash up’ period before the UK’s general election.

The Act, which affects property in England and Wales, was the very last bill passed in the ‘wash up’. This is the period following a call for a general election during which parliament rushes some agreed bills through the legislative process to avoid losing progress made and abandons others, for example, the Renters Reform Bill has fallen.

The Act was then published on 3 June but most provisions in the Act will come into force at a later date. This is aside from regulation of remedies for rent-charge arrears, recovery of legal costs etc through service charge, repeal of Section 125 of the Building Safety Act and Section 118 – higher risk and relevant buildings: notifications in connection with insolvency. Whether and when any of the other provisions of the Act will come into force remains unknown.

“What is notoriously absent from the Act is the plan to phase out ground rent for existing leaseholders or cap it at £250 a year as had been suggested by Michael Gove and which will be a welcome relief for investors in ground rents. Dealing with the issue of existing ground rents will be an item for the next government, should they be willing to grasp that nettle,” said Nicola Charlton, property disputes expert at Pinsent Masons.

The Act strengthens existing consumer rights for homeowners and introduces new ones. It introduces fundamental changes to the valuation methodology and legal process with a view to making it cheaper, easier, fairer, and more transparent for leaseholders to extend their leases and buy their freeholds.

The key provisions of the Act include longer lease terms. Leaseholder can now extend their leases by an additional 990 years with ground rent reduced to a nominal ‘peppercorn’ rent, removing the need for leaseholders to extend their leases more than once.  

The Act introduces a majority ban on leasehold houses, with only a very limited category of permitted leasehold houses allowed outlined in the Act.

The abolition of marriage value will reduce the premium payable significantly for leases of less than 80 years. Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease.

The Act also removes the two-year ownership requirement for extending leases or purchasing the freehold, allowing new leaseholders to act immediately.

Mixed-use buildings may now qualify to buy their freeholds and the right to manage (RTM) increasing the commercial property element from 25% to 50% of floor area to allow a building to qualify for enfranchisement or RTM.

Freeholders will now be required to pay their own costs except in low-value claims and can now be forced to retain any non-participant flats or commercial leases in collective enfranchisement claims.

The Secretary of State is to prescribe the deferment and capitalisation rates required to allow the new formula in the Act to work. The Minister in the House of Lords said they would be set at market rates, to be reviewed by regulation every five to ten years. These rates will be set by way of secondary legislation by the new government in due course.

Charlton said: “Until secondary legislation is in place to implement the key provisions of the Act, there is still uncertainty about when, if ever, the provisions of the Act will come into effect. Given the forthcoming election, it is clear that there will be a delay and depending upon who the Secretary of State and government of the day turns out to be, will be key factors in determining the date of implementation. It should also be remembered that one parliament cannot bind its successors, so it would also be open for any future government to pass further primary legislation amending or repealing the Act in whole or in part, depending upon the new government’s priorities and commitments. So, it is still very much a watch this space to see what the new government decides to do”. 

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