The leasehold system has been a contentious issue for years, especially in England and Wales. Under this system, homeowners purchase the right to live in a property for a set period, typically 99 to 999 years, but they do not own the land on which the property stands. The land is owned by a freeholder, and leaseholders often face additional costs and restrictions, including ground rent, service charges, and fees for extending leases or purchasing the freehold.
In May 2024, the UK Parliament passed the Leasehold and Freehold Reform Act, a piece of legislation that has been hailed as a significant step forward in property rights in England and Wales. Although it has not yet come into force, this new legislation addresses long-standing issues within the leasehold system, aiming to create a more equitable framework for property ownership and management. Here, we explore the key aspects of the Act, its implications, and what it means for homeowners and landlords.
Key Objectives of the Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 aims to tackle several critical issues that have affected leaseholders for years. The key objectives include:
Extended Lease Terms
Leaseholders will have the right to extend their leases by 990 years, a marked improvement on both the 1967 Act, which gave leaseholders an extension of 50 years, and the 1993 Act, which offered 90 years. This change provides leaseholders long-term security and peace of mind, ensuring their investment in their property is protected.
In addition to extending lease terms, the Act will make it easier for leaseholders to extend their leases by introducing standardised processes and more straightforward guidelines. Leaseholders will no longer have to have owned their property for two years to apply for a lease extension. The Act will also ban the future sale of the vast majority of new leasehold houses.
Simplifying Enfranchisement & Right to Manage
The processes of buying the freehold and acquiring the Right to Manage will be streamlined. This change includes reducing the costs and simplifying the legal procedures, making it more feasible for leaseholders to take control of their property. Leaseholders will no longer be responsible for the freeholder's fees when making the application a claim for enfranchisement.
Previously, only up to 25% of a building could be commercial space to be eligible for Right to Manage. This has been increased to 50%, meaning more buildings with lower floors that are commercial or office space, for example, will now be able to apply.
Transparent Management Fees
The Leasehold and Freehold Reform Act 2024 will ban excessive buildings insurance commissions often charged by managing agents and replace them with reasonable admin fees.
Further to addressing unfair commission charges, the Act will enforce greater transparency in service charges. Freeholders and managing agents will be required to provide detailed breakdowns and justification for charges, ensuring they are fair and reasonable. Any bills issued to leaseholders will need to be formatted following a standardised template, offering leaseholders much more transparency over their service charges.
Who will benefit?
The bill will benefit individual property owners, prospective buyers, and the property market as a whole.
Leaseholders
The reform is a significant win for leaseholders, providing financial relief, greater control over property management, and the possibility of more secure long-term ownership arrangements.
Prospective Buyers
The new rules make leasehold properties more attractive by reducing future financial uncertainties and making ownership more straightforward.
Freeholders
While the Act introduces more stringent regulations, it also provides a clear framework for property management. Freeholders will need to adapt to the new rules, ensuring transparency and fairness in their dealings with leaseholders.
The Property Market
These reforms are expected to stabilise and potentially boost the property market. The Act promotes a more transparent, fair, and sustainable property ownership model by addressing the most controversial aspects of the leasehold system.
Looking ahead…
The new Labour government has also announced that it will draft new legislation called the Leasehold and Commonhold Reform Bill. The bill will aim to reduce reliance on a leasehold system and encourage the uptake of a revived commonhold system.
The government aims to make commonhold a more attractive and viable option by providing better support and clearer regulations for its implementation. This will give property owners the opportunity to own their units outright and participate in the management of their building.
The Leasehold and Freehold Reform Act 2024 represents a significant shift in property law in England and Wales. By addressing the long-standing issues within the leasehold system, the Act paves the way for a fairer and more equitable housing market. As these reforms take effect, homeowners, landlords, and potential buyers will need to understand the new landscape and adapt accordingly. The ultimate goal of these changes is to ensure that property ownership in the UK is more transparent, fair, and beneficial for all parties involved.
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