In the intricate landscape of property ownership, leasehold arrangements have long been a contentious issue in England and Wales. However, the new Leasehold and Freehold Reform Act (“the Act”), recently introduced by the government on 24 May 2024, promises significant changes aimed at empowering leaseholders and redressing longstanding imbalances. This article explores the key aspects of the Act and its implications for current and prospective homeowners.
The Context and Need for Reform
Leasehold ownership, a system where homeowners purchase the right to live in a property for a specified period, has historically come with several challenges. These include escalating ground rents, onerous lease terms, and substantial fees for extending leases or purchasing freeholds. Over the years, these issues have sparked widespread dissatisfaction among leaseholders, prompting calls for comprehensive reform.
The Act emerges as a response to these concerns, aiming to provide fairer, more transparent terms for leaseholders and to facilitate a smoother path to full property ownership.
Key Provisions of the Act
- Simplified Lease Extensions: The Act proposes a simplified process for lease extensions. Under the new legislation, leaseholders of both flats and houses will be able to extend their lease by 990 years (rather than the current 90 years for flats and 50 years for houses) at zero ground rent. The previous qualification of 2 years of ownership for lease extension has also been scrapped. This change aims to provide long-term security and stability for leaseholders, ensuring they can enjoy their homes without the constant worry of lease expiration or unfavourable terms and ensure easier and cheaper conveyancing as the extension will no longer need to be linked to the sale.
- Freehold Houses: The Act will ban the future sale of leasehold houses except in very limited circumstances.
- Valuation Process: The Act abolishes “marriage value”, i.e. a hypothetical profit by a Landlord resulting from the extension of a lease with less than 80 years. Deferment and capitalisation rates still need to be set and will be prescribed when the Act is brought into force. The calculation of premiums will be made clearer, with the government setting out to make it cheaper for leaseholders to extend their lease.
- Management, Service Charges & Insurance: The Act ensure that freeholders who manage buildings cannot charge extortionate fees for management packs and ensure these are provided within a time limit. Service charge demands will also be standardised for greater clarity. Simplified redress schemes for challenging poor management practice and challenge unreasonable service and insurance charges will also be introduced. This empowerment aims to give leaseholders greater control over the maintenance and administration of their homes.
- Enfranchisement & Right to Manage: Currently it is not possible to enfranchise (buy the freehold) where a building has over 25% commercial use. However, the Act will increase this limit from 25% to 50% making it easier for homeowners in mixed development buildings to enfranchise or exercise their right to manage the building without needing to prove mismanagement by the freeholder. This empowerment aims to give leaseholders greater control over the maintenance and administration of their homes.
Implications for Homeowners and the Market
Although it was anticipated that ground rents would be abolished or capped, this did not make it into the Act. This is a benefit for Ground Rent Portfolio owners but no doubt a disappointment to affected leaseholders.
The Act represents a significant shift towards a more equitable property ownership system. For current leaseholders, the simplification of lease extensions could mean considerable financial savings and peace of mind. Prospective homeowners may find leasehold properties more attractive, knowing they won't be subjected to the same onerous conditions as in the past.
Furthermore, the clearer and fairer valuation process may lead to increased transactions in the property market, as more leaseholders take the step to purchase their freeholds or extend their leases. This could stimulate the market.
Conclusion
The Act marks a pivotal moment in the evolution of property ownership in England and Wales. By addressing some of the most pressing issues faced by leaseholders and introducing measures to promote fairness, transparency and expediency, the Act has the potential to significantly improve the experience of millions of homeowners. For those navigating the complexities of leasehold property, consulting with a solicitor to understand the implications of these reforms and to strategize their next steps will be crucial. As secondary legislation is passed to bring effect to the Act, staying informed and prepared will be key to leveraging its benefits.
If you would like further information please contact Alexy Pemberton +44 (0) 207 758 8170 alexypemberton@cdsmayfair.com
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