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What is the Leasehold and Freehold Reform Act 2024

On 24 May 2024, the Leasehold and Freehold Reform Act received royal assent. Our Real Estate lawyers provide an overview of the changes introduced by this legislation.

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Published 21 June 2024

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On 24 May 2024, the Leasehold and Freehold Reform Act received royal assent. The Act focuses on granting leaseholders greater security, transparency of information and further freedom to manage their own buildings and challenge service charges. Regardless of which political party is elected on 4 July, the leasehold reform is set to be implemented and here’s what we know about it so far:

  • Absolute ban on sale of leaseholds: Arguably the most transformative change in the Act, is the removal of leasehold sales of new houses, which will significantly alter the future of the property market. All new houses in England and Wales will be freehold from the outset, apart from exceptional circumstances (for instance, land held by the National Trust) We can assume that on implementation of the Act, there will be greater clarity as to what those exceptional circumstances will be; however, from the tone of the Act, which works towards granting greater security to leaseholders and removing leasehold sales in their entirety, it is likely these circumstances will be narrow.
  • Greater security to leaseholders: The Act seeks to grant greater security to leaseholders, removing some of the barriers for leaseholders to purchase the freehold, making it cheaper and easier for leaseholders to buy the freehold interest. For example, there will be no requirement for leaseholders to pay the freeholder’s costs when they make a claim, which will boost leaseholder’s enfranchisement rights, rather than deterring leaseholders wishing to purchase. Leaseholders will no longer have to have owned the house or flat for two years before they can buy or extend the lease. Additionally, leaseholders are currently prohibited from taking over management or buying the freehold interest if more than 25% is commercial. The Act will reform this, by increasing the limit to 50% to further support leaseholders with collective enfranchisement, giving them more rights to manage the properties.
  • Lease Extensions: The standard lease extension term will be significantly increased. Currently, the standard is 50 years for houses and 90 years for flats; both will be raised to 990 years, in an attempt to reduce time and expense with leasehold extensions.
  • Greater transparency with service charges: The Act promises to bring more transparency regarding service charges to leaseholders, with the objective of bringing greater knowledge to leaseholders, so they can understand what they are paying for, helping them to challenge unreasonable prices. If leaseholders do wish to dispute charges, the Act will put an end to the presumption that leaseholders should pay the freeholders costs, encouraging leaseholders to determine their rights to fairer charges.
  • Managing properties: Leaseholders are also being granted more independence in terms of management of properties, as they will be entitled to appoint managing agents of their choice. The Act will also provide further protection in respect of management, as freeholders managing their buildings directly, will be required to belong to the redress scheme which managing agents are currently a part of. Homeowners for both private and mixed tenure estates will have comprehensive rights of redress, entitling them to receive more information about charges, and methods to confront any unreasonable charges.
  • Excessive Insurance Commissions: In a further attempt to encourage fairer and transparent fees for leaseholders, there will be a ban on any excessive insurance commissions for freeholders.

Until the Act is implemented, it will be difficult to determine the extent to which the Act will change the landscape of the property market; however, it is evident from the Act that reform will be highly transformative, and its clear objective is to benefit the leaseholder with security and more control of their interests.

For more information, please visit our Real Estate Lawyers page or contact a member of the team.

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Longer Reads

What is the Leasehold and Freehold Reform Act 2024

On 24 May 2024, the Leasehold and Freehold Reform Act received royal assent. Our Real Estate lawyers provide an overview of the changes introduced by this legislation.

Published 21 June 2024

Associated sectors / services

  • Commercial real estate
  • Real Estate
  • Residential property

Authors

On 24 May 2024, the Leasehold and Freehold Reform Act received royal assent. The Act focuses on granting leaseholders greater security, transparency of information and further freedom to manage their own buildings and challenge service charges. Regardless of which political party is elected on 4 July, the leasehold reform is set to be implemented and here’s what we know about it so far:

  • Absolute ban on sale of leaseholds: Arguably the most transformative change in the Act, is the removal of leasehold sales of new houses, which will significantly alter the future of the property market. All new houses in England and Wales will be freehold from the outset, apart from exceptional circumstances (for instance, land held by the National Trust) We can assume that on implementation of the Act, there will be greater clarity as to what those exceptional circumstances will be; however, from the tone of the Act, which works towards granting greater security to leaseholders and removing leasehold sales in their entirety, it is likely these circumstances will be narrow.
  • Greater security to leaseholders: The Act seeks to grant greater security to leaseholders, removing some of the barriers for leaseholders to purchase the freehold, making it cheaper and easier for leaseholders to buy the freehold interest. For example, there will be no requirement for leaseholders to pay the freeholder’s costs when they make a claim, which will boost leaseholder’s enfranchisement rights, rather than deterring leaseholders wishing to purchase. Leaseholders will no longer have to have owned the house or flat for two years before they can buy or extend the lease. Additionally, leaseholders are currently prohibited from taking over management or buying the freehold interest if more than 25% is commercial. The Act will reform this, by increasing the limit to 50% to further support leaseholders with collective enfranchisement, giving them more rights to manage the properties.
  • Lease Extensions: The standard lease extension term will be significantly increased. Currently, the standard is 50 years for houses and 90 years for flats; both will be raised to 990 years, in an attempt to reduce time and expense with leasehold extensions.
  • Greater transparency with service charges: The Act promises to bring more transparency regarding service charges to leaseholders, with the objective of bringing greater knowledge to leaseholders, so they can understand what they are paying for, helping them to challenge unreasonable prices. If leaseholders do wish to dispute charges, the Act will put an end to the presumption that leaseholders should pay the freeholders costs, encouraging leaseholders to determine their rights to fairer charges.
  • Managing properties: Leaseholders are also being granted more independence in terms of management of properties, as they will be entitled to appoint managing agents of their choice. The Act will also provide further protection in respect of management, as freeholders managing their buildings directly, will be required to belong to the redress scheme which managing agents are currently a part of. Homeowners for both private and mixed tenure estates will have comprehensive rights of redress, entitling them to receive more information about charges, and methods to confront any unreasonable charges.
  • Excessive Insurance Commissions: In a further attempt to encourage fairer and transparent fees for leaseholders, there will be a ban on any excessive insurance commissions for freeholders.

Until the Act is implemented, it will be difficult to determine the extent to which the Act will change the landscape of the property market; however, it is evident from the Act that reform will be highly transformative, and its clear objective is to benefit the leaseholder with security and more control of their interests.

For more information, please visit our Real Estate Lawyers page or contact a member of the team.

Sources:

Associated sectors / services

  • Commercial real estate
  • Real Estate
  • Residential property

Authors

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