Leasehold reform 2024 – Essential Information

The Leasehold and Freehold Reform Act has received Royal Assent but is not yet in effect. The minor amendments to the Building Safety Act will commence on July 24, 2024, while the full implementation will be determined by the next government, likely in stages. Key points of the Act include:

What are the main benefits as an investor?

  • Highly like to be cheaper ground rents if your investment is on leasehold
  • Easier and cheaper to extend your lease if you have a short period remaining, this will open a larger pool of investment opportunities.
  • Extension of leases for houses and flats to 990 years, essentially eliminating concerns over leasehold periods.

The reform is more extensive than these few points, below we have summarised all the key takeaways currently known regarding the lease reform bill…

Consumer Rights and Lease Extensions:

  1. Cheaper Lease Extensions: Especially for leases under 80 years, as marriage value is abolished.
  2. Extended Lease Terms: Increased to 990 years for houses and flats.
  3. Service Charge Transparency: Standardized bills and year-end reports are required.
  4. Right to Manage: Easier and cheaper for leaseholders to take over building management.
  5. Redress Schemes: Mandatory for freeholders, allowing leaseholders to challenge poor practices.

Additional Benefits for Leaseholders:

  1. Legal Costs: Leaseholders will not have to pay freeholders’ legal costs when challenging service charges.
  2. Insurance Commissions: Ban on opaque and excessive buildings insurance commissions.
  3. New Leasehold House Sales Ban: Except in exceptional circumstances, new houses will be freehold.
  4. Ground Rent: Right to buy out ground rent without extending the lease.

Cost Considerations for Lease Extensions:

  1. Short Leases and High Ground Rent: Likely to be cheaper under the reform.
  2. Long Leases and Low Ground Rent: Potentially more expensive due to unspecified valuation rates.

Timeline for Implementation:

  1. Full effects of the reform might not be realized until 2025/26, with ongoing stages of implementation.

Missing Reforms: there is still several things missing from the reform, these are as follows…

  1. Ground Rent Cap: No cap on existing leases; leaseholders can reduce ground rent to a peppercorn by extending the lease or buying out the ground rent.
  2. Estate Charge Redress: Limited extension of redress rights for freeholders.
  3. Forfeiture: No end to the right for freeholders to repossess flats for certain lease breaches.
  4. Adoption of New Estates: New build estates not mandated for local authority adoption.

Abolishing Leasehold for New Flats:

  1. The Act does not abolish leasehold for new flats, a missed opportunity according to advocates.

For leaseholders deciding whether to extend their lease now or wait, considerations include lease length, ground rent, and personal circumstances. Professional advice is recommended.

Despite some positive reforms, the Act falls short in areas like capping ground rents on existing leases and abolishing leasehold for new flats, which continues to allow exploitation by management agencies and freeholders.