Leasehold and Freehold Reform Act 2024: It's progress but not perfection

With the general election set to take place on 4 July 2024, property practitioners and industry professionals feared that the long-awaited Leasehold and Freehold Reform Bill would fall by the wayside, leaving the position relating to leasehold and freehold property law in England and Wales without the much-needed reform promised by the Conservative government. However, the Bill was rushed through in the last few days of parliamentary time and received Royal Assent on 24 May 2024. Bringing the provisions of the Act into force by way of secondary legislation will be the task of a new government.

Why is reform needed?

The concept of leasehold property has existed in English and Welsh property law since at least the 11th Century. It arises out of the feudal system of land ownership and has since been enshrined in legislation. To put it in simple terms, a leasehold estate is ownership of a right to hold land or property for a limited period of time. In most cases, the leaseholder pays rent and service charges to the freeholder (the landlord) and observes and performs the conditions set out in the lease which governs the relationship between the leaseholder and the landlord.

Issues with leasehold ownership have long been recognised and the need for reform has gained greater traction over the last few years. The Law Commission published a series of reports in July 2020 relating to enfranchisement (a term given to a leaseholder’s right to extend their lease or purchase the freehold of their building) and right to manage laws (which allow leaseholders in certain circumstances to take over management of the building, even without the landlord’s consent or agreement). The guidance notes for the Bill claim that it will make long-term changes to home ownership for millions of leaseholders in England and Wales. As enacted, the legislation runs to 124 sections and 13 sections, all with the stated aim of “empowering” leaseholders and “improving their consumer rights”. The question is, has it delivered?

What the Act does

The Act addresses a number of issues raised by the Law Commission. Some of the key provisions included are as follows:

  • A ban on the sale of new leasehold houses (except in exceptional circumstances);
  • Provisions to make it easier and cheaper (so the government say) for leaseholders to acquire the freeholds of their houses, to extend leases of their houses and flats and to collectively enfranchise or manage the buildings containing their flats;
  • Increase of the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to a peppercorn;
  • Removal of the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy the freehold; and
  • Allowing leaseholders of mixed-use buildings where up to 50% of the floorspace is ‘non-residential’ to buy their freehold or take over its management (increased from 25%).

There are also a number of changes relating to leaseholders’ rights in relation to service charges and management of the building, including (amongst other things) the introduction of a standardised service charge demand form and a requirement for freeholders who manage their property to belong to a redress scheme, so leaseholders can challenge them if needed.

What is absent from the Act is the proposed plan to phase out or cap existing ground rents to £250 per annum, which had been suggested by Michael Gove. This will no doubt be disappointing for many leaseholders, but welcomed by landlords and investors with ground rent portfolios.

When does it come into force?

The Act states that certain provisions relating to rentcharges, the recovery of litigation costs in service charge disputes and certain amendments relating to the Building Safety Act 2022 will come into force two months after the Act is passed into law. Based on that analysis we can expect those provisions to become operative by 24 July 2024.

However, the remaining provisions will need to be brought into force by regulations or secondary legislation. This will require detailed drafting and careful consideration, which is likely to take some time.

And now, we wait…

The government is in a state of “purdah”, during which it will normally observe discretion about making new announcements or decisions that could affect their election campaign. Like the government, property owners, practitioners and industry professionals are in a state of uncertainty, whilst we wait to learn which party will be in No.10 following 4 July 2024 and thereafter wait to find out what they propose for the future of the Act.

Whilst the Act can be seen as a step in the right direction for delivering the much-needed changes, until we see the detail around how the changes will be implemented, we cannot say definitively whether the Act delivers on its aims.

But should leaseholders wait…

Leaseholders will be concerned as to whether they should instigate lease extension or enfranchisement claims now, or whether they should wait and see if, and in exactly what terms, the Act comes into force.

The answer to that will never be black and white. It will depend on a number of factors and leaseholders should take specialist advice. It is likely that the answer will be a balancing act between risk and potential benefit, which will be specific to the facts in each case.