Leasehold and Freehold Reform Act 2024

Although the text of the Act is not yet available, some headline points in relation to its key measures are below.

What’s in?

The Act contains provisions that will:

• Make it 'cheaper and easier' for existing leaseholders in houses and flats to extend their lease or buy their freehold and increase the standard lease extension term to 990 years for both houses and flats. The Act also removes the two year ownership requirement for a new leaseholder before they can benefit from these changes. The Act will also make the process cheaper for leaseholders as they will no longer have to pay the freeholders costs.
• Allow leaseholders in buildings with up to 50 per cent non-residential floorspace to buy their freehold or take over the building's management. Currently leaseholders in mixed use buildings where more than 25% of the floor space is non-residential are unable to collectively enfranchise the freehold or exercise a Right to Manage.
• Ban the creation of new leasehold houses (save for exceptional circumstances).
• Increase transparency on service charge (including by requiring certain bills in standardised formats) and replacing buildings insurance commissions for managing agents, landlords and freeholders with administration fees. The government notes that the Act also scraps the ‘presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges’.
• Require freeholders who directly manage a building to belong to a redress scheme so leaseholders can challenge 'poor practice'.
• Set a maximum time and fee for the provision of information required by a leaseholder from their landlord on a sale (such as building insurance or financial records).
• Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders and increased transparency on charges.

What’s not?

When the Bill was first published the government also noted it would, subject to consultation, seek to cap ground rents in existing leases. A consultation was issued but no such provisions are included in the Act.

Comment

The initial aim of this legislation was to bring an end to the leasehold system but since last year the legislation has continued to be watered down. The Act does include a number of improvements from a residential long leaseholders’ perspective.

For those with mixed use schemes (for example residential units above commercial property) there is more opportunity for residential tenants to exert influence and control over management of significant mixed use properties. This will be of particular interest to those who own or manage such developments and the Act is broader than purely residential landlords. Such schemes can often be complex and challenging developments to manage requiring significant professional skill. Technical regulation in relation to residential blocks generally is complex and the requirements are increasing.

Labour have indicated that “commonhold should be the default tenure for all new properties, - with the system completely overhauled so that existing leaseholders can collectively purchase more easily and move to commonhold if they wish.” However, what this means in practice and how it would be implemented under a Labour government remains to be seen.

It is also worth noting the Renters (Reform) Bill did not make it through the wash up. Labour’s next steps in relation to reform of the rental market will be awaited with significant interest, and particularly whether they will introduce rent control.