Industry News James Wood 31/05/2024

Leasehold and Reform Act: What you need to know

Following the announcement of a General Election there was concern that neither the Renters (Reform) Bill or the Leasehold nor the Freehold Reform Bill would become law. 

While the Renters (Reform) Bill did not complete its passage, the Leasehold and Freehold Reform Act is now law, though it has not yet come into force. 

What is included in the Leasehold and Freehold Reform Act?

Once the Act is in force, the legislation aims to strengthen consumer rights by: 

  • Banning the sale of new leasehold houses so that, other than in exceptional circumstances, every new house in England and Wales will be freehold from the outset. 

  • Making it easier for leaseholders to extend their lease or buy their freehold, and make standard lease extensions 990 years to reduce the need for repeated extensions. 

  • Excluding ‘marriage value’ when calculating the premium on lease extensions. 

  • Standardising the format of service charge demands so leaseholders have greater transparency about what they are being charged. 

  • Making it easier to access redress by requiring freeholders who manage their property to belong to a redress scheme. Currently only managing agents need to belong to a scheme. 

  • Removing the requirement to pay the freeholders cost when exercising their enfranchisement rights, making it easier to buy the freehold. 

  • Setting maximum time limits for providing home buying and selling information, and setting a maximum fee providing this information. 

  • Giving homeowners on private and mixed tenure estates comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are. 

  • Scrapping the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice.  

  • Banning ‘opaque and excessive’ buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees. 

  • Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy their freehold. 

What is not included in the Act?

Controversially, despite rumours the Act would phase in a cap on ground rents, this was not included.  

In addition to this, new flats will remain leasehold by default. Initially, the Act was expected to make commonhold the default tenure for flats. 

Both of these are likely be revisited by Labour should they win the General Election. After the Act passed, Matthew Pennycook stated that Labour would take further action to make commonhold the default tenure and act to regulate ground rent charges.  

A number of amendments aimed at resolving the unfairness of the Building Safety Act were also not included.

The NRLA had been very supportive of measures that would extend protections for building remediation so that millions of leaseholders did not face uncapped costs for fixing building safety defects.  

As these measures were not included, the NRLA will continue to engage with the next Government to widen access to leasehold protections. Particularly, for non-qualifying leaseholders such as landlords with more than three properties.  

When will it apply from? 

Some relatively minor amendments to the Building Safety Act and provisions around arrears for rent charges will come into force on 24 July 2024. The rest of the Act will come into force when the next Government decides to implement it. Some of the key provisions (for instance the lease extension premium calculation) require secondary legislation to be laid, the timing of which will depend on the new Government’s priorities.  

Ironing out the details ahead of implementation is likely to be challenging, particularly around things like calculating capitalisation rates. Given this, there is likely to further consultation before implementation and leaseholders should probably not expect the Act to apply to them until 2025/26.  

James Wood

James Wood Head of Policy

James Wood, LLB, is the NRLA’s Head of Policy. James has provided legally sound advice to thousands of landlords for more than six years, along with producing the organisation’s guides and documents and training the organisation’s highly rated advice service.

See all articles by James Wood