Leasehold reform 2024: What you need to know

All the latest on the new Leasehold and Freehold Reform Act and the planned Leasehold and Commonhold Reform Bill announced in the Kings Speech. Here we set out what reforms are being introduced and when regarding leaseholder rights, ground rents, fleecehold on private housing estates, forfeiture, restrictions on the sale of new leasehold flats and more.

Paula Higgins CEO & Founder

The Leasehold and Freehold Reform Act is now law – although it has not yet come into effect. Only a few minor amendments to the Building Safety Act will come into force on 24 July 2024, as well as allowing a property to be repossessed because of a missed rent charge payment. The new government has said they will act quickly to implement the rest of the Act which will likely be done in stages and will take many months because further consultation and secondary legislation will be needed. Until then, the current laws on leasehold remain. Read on for more details.

Once it is in effect, the Act will strengthen existing consumer rights and introduces new ones for leaseholders by:

• Making it cheaper for some leaseholders to extend their lease or buy their freehold. The original intention of the legislation is for leaseholders to pay less, but this may not be the case for everyone. Those with a short lease (less than 80 years) should find their lease extensions cheaper once the relevant part of the Act is in force and marriage value is abolished.
• Increasing the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats), so leaseholders have the right to more secure ownership without the hassle and expense of future lease extensions.
• Giving leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged. There will be a requirement to produce a year-end report with details of planned major works.
• Making it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent of their choice. Leaseholders will now be able to access the Right to Manage in buildings where up to 50% of the floor space is commercial. Previously the limit was 25%.
• Making it cheaper for leaseholders to exercise their enfranchisement rights as in most cases they will no longer have to pay their freeholder’s costs when making a claim.
• Extending access to redress schemes for leaseholders to challenge poor practice. The government will require freeholders, who manage their building directly, to belong to a redress scheme so leaseholders can challenge them if needed – managing agents are already required to belong to a scheme.
• Making buying a leasehold or selling a leasehold property quicker and easier by setting a maximum time and fee for home buying and selling information.
• Granting 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.

The Act will further benefit leaseholders by:

• Scrapping the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice. This currently acts as a deterrent when leaseholders want to challenge their service charges.
• Banning opaque and excessive buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.
• 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.
• Removing the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.
• A new legal right to buy out the ground rent without extending the lease at the same time.

A new Leasehold and Commonhold Reform Bill

In the King’s Speech on 17th July 2024, the government promised draft legislation in 2024/25 to bring the feudal system of leasehold to an end and to reinvigorate commonhold. The draft legislation will include:

• enacting remaining Law Commission recommendations to bolster leaseholders’ rights to extend their lease and the Right to Manage.
• tackle unregulated and unaffordable ground rents which can rapidly escalate and make it difficult for leaseholders to sell, even if priced correctly. The government estimates that 86 per cent of leaseholders pay a ground rent, avaraging almost £300 a year in England.
• removal of the threat of forfeiture so that leaseholders are protected from losing their homes for potentially small unpaid debts such as ground rent.
• restrict the sale of new leasehold flats by requiring commonhold to be the default tenure. The government will consult on the best way to achieve this and will produce a new comprehensive legal framework setting out how commonhold will work in practice.
• consult on the best way to address the injustices of ‘fleecehold’ private housing estates and unfair maintenance costs. This will go further than the new protections inclulded in the Leasehold and Freehold Reform Act 2024. There are as many as 1.75 million homes on private estates and this continues to grow. According to the Competition and Markets Authority, homeowners pay around £350 a year in new build management charges.

At this time, the government is only committed to producing draft legislation for Leasehold and Commonhold Reform Bill. Draft Bills are subject to consultation. The earliest the bill could be introduced to Parliament will be in late 2025 but it will likely take much longer in order to get the commonhold provisions working.

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Should I extend my lease now or wait?

While the Leasehold and Freehold Reform Act commits to making leasehold extensions cheaper and easier there is further work to be done to make this a reality.  Although the government confirmed in the Kings Speech in July 2024 that they intend to act quickly, they will be subject to intense lobbying by the freeholders who are set to lose financially.

How much lease extensions and freehold purchases cost is dictated by the ‘capitalisation’ and ‘deferment rates’ which haven’t been included in the bill. These valuation rates for leasehold extensions must be set at ‘market value’ and are likely to require separate consultations and secondary legislation. So changes to the lease extension process may not be realised until 2025/26.

If you are a leaseholder considering whether to extend your lease or purchase your freehold now or to wait, you need to consider:

1. Will the reform make a lease extension cheaper for me?

If your lease is below 80 years, or if you have a ground rent above 0.1% of the value of your property, it will likely be cheaper. That’s because the reforms were designed to help people who have short leases below 80 years, by abolishing marriage value. It also helps people with high ground rents, by capping ground rents in the lease extension calculation – although the cap doesn’t apply in all cases. You may not be eligible for the cap if the freeholder argues that the lease was discounted because of the ground rent included.

2. Could the reform make a lease extension more expensive?

If your lease is above 80 years or you have a low ground rent, the reforms could end up making a lease extension more expensive – though that is not the intention. This is because the Act doesn’t specify the rates that are used to determine lease extension and freehold purchase prices. These “deferment and capitalisation rates” will be set at a later date and if they’re set at a lower rate than what is currently agreed between valuers, the cost of lease extensions will go up. Until that happens, we won’t know whether the cost of lease extensions will come down for all leaseholders.

3. Can I wait for the reforms to be implemented?

The Act is not in effect and the new Government has indicated that it wants to implement the Act quickly. But the reforms will be implemented in stages and will require further consultation and secondary legislaiton. So it’s worth noting that reform is still some time off.

Given the above, it is hard to give a definitive answer on whether you should extend your lease now.  You should seek advice from a leasehold specialist. You can get a free initial consultation and estimate from our leasehold specialist partners

We also spoke to Linz Darlington of lease extension specialists Homehold who says that most people with leases below 80 years or with ground rents above 0.1% of the value of the flat are now waiting if they are able to do so – because there is a real possibility that their lease extension will be cheaper in the future.

He adds that for people in flats where the leases are above 80 years, and have a low ground rent – such as the £10 commonly included on Local Authority leases – it is more of a gamble. These lease extensions could be more expensive in the future.

Does the length of my lease make a difference?

What you might choose to do will depend on factors like your lease length and your circumstances. For example:

• Lease length: 80 to 82 years – It’s almost certainly advisable to extend. It’s unlikely that the reforms will be through before your lease drops below the “80-year mark” at which marriage value currently kicks in. There is no guarantee that it will be cheaper in the future than it is for you now.
• Want to move or re-mortgage and the current lease is an issue: Probably best to extend. 
• Lease is above 82 years – It’s up to you: it is likely be made cheaper by the reforms, but it might also made more expensive. If you’re comfortably over the threshold, say 100 years, you could wait to see what reforms come.
• Ground rent is above 0.1% of your property value (or rises to that level in the future): Consider waiting because it may be made cheaper for you in the future if the 0.1% cap applies to your lease.
• Lease below 80 years: Again, you should consider waiting as it might be made cheaper for you in the future given abolition of marriage value.

Where is the cap on ground rents?

Alongside the Leasehold Reform Bill, the government issued a consultation document that acknowledged:

“Leaseholders have paid many tens or hundreds of thousands of pounds for their homes, only to find themselves locked into a tenure that has denied them the full benefits of ownership, and committed them to certain expenses over which, historically, they have had little control. 

For centuries, ground rents were typically small sums, even a peppercorn. But in this century, we have seen an increase in these rents, often rising at frequent intervals. This can blight people’s homes and lives, leaving them facing ever rising costs yet unable to sell the property easily due to these charges.”

The government consulted on 5 proposals to decide the best way forward. These are:

• setting ground rents at a peppercorn – which we have supported in our response to the consultation.
• putting in place a maximum financial value (£250) which ground rents could never exceed
• capping ground rents at a percentage of the property value
• limiting ground rent in existing leases to the original amount when the lease was granted
• freezing ground rent at current levels 

There were claims the popular proposal of setting ground rents to a peppercorn were met with fierce resistance from Treasury in early 2024, following an intensive lobbying campaign from pensions funds which had invested billions in buying up freeholds for blocks of flats. Although no reform was included in Leasehold Reform Act, there are plans to tackle ground rent in the next draft legislation.

Will the sale of leasehold houses be banned?

Yes. The sale of new leasehold houses will be banned under the Act so every new house in England and Wales will be freehold (other than in exceptional circumstances). We’ve been campaigning for this since 2017 and asked for this in our Homes Held Hostage report. Since the government announced its intention to end leasehold houses later that year, the sale of new leasehold homes have dwindled. Even so, we welcome formalising it in law as we still see leasehold houses for sale, particularly in the retirement housing sector.

What about abolishing leasehold for all new flats?

The new government has announced it’s plans to abolish leasehold for all new flats via a new bill, the Leasehold and Commonhold Bill. We are delighted to see the end of leasehold as it is an outdated feudal system that needs to go. But the battle is not over and we will continue to campaign – with so many other voices – for the end of leasehold.

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