Leasehold Reform gets washed up before government dissolves

Leasehold Reform gets washed up before government dissolves.

After years of promise and debate and to much anticipation, the Leasehold and Freehold Reform Act finally received Royal Assent on 24 May 2024 and in doing so became the last piece of legislation passed by this Conservative government.

For years discussion around what the legislation intended to achieve suggested a great deal of ambition on the part of the government. With a complete transformation of the ‘feudal’ leasehold system being promised, it was very much seen and promoted as a piece of transformative, legacy legislation by this government. The reality of what the legislation delivers differs slightly from what had been trailed.

In basic headline terms the Act achieves the following:

• Statutory lease extensions will now be granted for a term of 990 years, up from 90 years under the current regime (and will continue be granted at a peppercorn rent in line with the current regime).
• The abolition of Marriage Value (where the cost of a lease extension rises when the unexpired term of a lease goes below 80 years).
• The abolition of the two-year ownership qualifying period before a tenant can apply for a lease extension.
• The abolition of the 12-month prohibition on serving a new notice for a lease extension after the withdrawal or deemed withdrawal of a previous notice.
• Tenants will no longer be required to meet the costs of landlords/freeholders in relation to claims for lease extensions/enfranchisement except in certain limited circumstances.
• Changes to the qualifying criteria for leasehold enfranchisement claims.

The abolishment of marriage value should mean tenants with leases with less than 80 years to run will find extending their lease cheaper than under the existing regime. However, there is discussion that any benefit for those with a term of less than 80 years might be at the cost of those with terms of more than 80 years due to changes to another valuation device known as the Deferment Rate. Certainty is not something provided by this Act and the details are yet to be worked out.

What is certain though is that there have been significant omissions. The Act had initially set out to abolish Ground Rents, a pledge that was later changed to capping them. In the event, neither has been achieved and ground rents remain unaltered. The Act had also originally set out to prohibit the forfeiture of long leaseholds. This provision also did not make it into the final legislation.

There is no doubt this brand-new piece of legislation requires extensive and detailed analysis, including, importantly, into the changes to leasehold extensions are valued, but there is time for that as the process of actual implementation of the Act will not be swift. Implementation has been left to the government to be formed after the July election and many of the significant, complicated, and contentious details will need to be worked out by whoever gets that task. Implementation might not realistically occur until 2025/2026. Whilst the final detail of the Act remains to be seen, there is likely to be active opposition and challenge to the Act from landlord’s and freeholders. The Act has not achieved many of the reforms for tenants that it set out to, but landlords and freeholders will still feel aggrieved at various aspects of the Act and challenges on human rights grounds are anticipated. In the meantime, it feels a bit like being in limbo.

If you want to discuss your options in relation to leasehold extensions or enfranchisement and how best to navigate this new set of rules or are a landlord looking for advice on the new regime, we would be delighted to discuss the issue further and help bring some much-needed clarity.