What Is The Leasehold and Freehold Reform Act?

Leasehold properties date back to medieval England when landowners granted land to tenants for a specified period in exchange for rent or services. 

But unsurprisingly, what worked in medieval England does not suit modern housing needs. 

Leasehold landlords have struggled with these issues in particular: 

🏠 Increasing service charges: Landlords face significant costs associated with leasehold properties, including ground rent, service charges, and maintenance fees.

🏠 Uncertainty over tenure: Landlords encounter uncertainty regarding the long-term tenure of the property due to finite lease terms, which impacts their planning and investment choices.

🏠 Admin in renewing lease: Landlords face an enormous administrative burden when having to renew lease agreements, such as negotiating terms with freeholders. 

🏠 Difficulties selling property: Landlords experience challenges in selling leasehold properties due to concerns over the issues listed above. 

The Leasehold and Freehold Reform Bill sought to address these challenges. 

It became law at the end of May 2024. However, it’s worth noting that many aspects of the bill may take up to two years to be implemented. 

This article delves into the potential impact of this legislation.

What the Leasehold Reform Bill Covers

The Leasehold and Freehold Reform Bill attempted to address various shortcomings in the leasehold and freehold property systems in England and Wales. 

The three most noteworthy changes it introduced include: 

1. Banning new leasehold houses 

One of the most significant changes that the leasehold law introduced was the prohibition of new leasehold houses. 

This will ensure that future houseowners will own their properties outright rather than being subject to leasehold arrangements.

However, this ban doesn’t extend to blocks of flats, where new leasehold agreements will still be permitted.

2. Eliminating marriage value payments 

Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. 

It is calculated as 50% of the increase in the property's market value due to the existing lease extension and is paid to the freeholder. 

For example, let’s say a leaseholder extends their lease and, as a result, the property's value increases by £20,000. This means that the marriage value would be £10,000, with half of the increase going to the freeholder. 

The new Bill aims to potentially save leaseholders thousands of pounds by eliminating marriage value payments to freeholders. 

3. Using a lease extension calculator

When extending a lease, a fee also needs to be paid to the freeholder. 

These costs vary widely, depending on factors such as the remaining length of the lease, the value of the property, and any additional fees or compensation claimed by the freeholder. 

Currently, freeholders have the authority to set these fees themselves, forcing the leaseholder to comply if they want to maintain their rights to the property.

As a result, the leaseholder may pay significantly higher costs than initially anticipated. 

To help mitigate this, the Bill will standardise how lease extensions are calculated. 

This will ensure that leaseholders have more clarity and predictability regarding the costs involved in extending their lease.

Source: Pexels 

What Else Does the Bill Cover? 

Besides the three points outlined in the previous section, the Leasehold and Freehold Reform Bill also intends to: 

• Grant leaseholders on private and mixed tenure estates the same rights of redress as freeholders but not the Right to Manage.

• Extend leaseholders’ access to “redress” schemes to challenge poor practice.

• Replace building insurance commissions for managing agents, landlords, and freeholders with transparent admin fees.

• Require transparency over leaseholders’ service charges.

• Set a maximum time and fee for a freeholder to provide information to a leaseholder - this will make buying or selling a leasehold property quicker and easier.

• Scrap the presumption that leaseholders will pay their freeholders’ legal costs when challenging poor practice.

• Remove the requirement for new leaseholders to have owned their house or flat for two years before they can benefit from these changes.

• Build on the legislation brought forward by the Building Safety Act of 2022, ensuring freeholders and developers are unable to avoid their liabilities to fund building remediation work.

• Allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (an increase from 25%).
  
  

What Is the Future of Leasehold Reform? 

Several key pieces of housing reform legislation were dropped before parliament closed, as the government didn’t have time to make them law.

This included the cap on ground rents (as mentioned above) and the Renter’s Reform Bill.

It’s therefore likely that the next government will introduce further housing reforms. 

What Does the Bill Mean for Landlords?

The new Bill has the potential to increase the value of homes with short leases by nearly 10% and transfer billions from freeholders to leaseholders. 

While the rules aim to make commercial and residential leasehold properties more affordable for landlords and low-income individuals, some aspects only apply to new leases. 

This may result in disparities for those already in unfair agreements.  

Source: Pexels 

Stay Up to Date with the Latest Developments 

The new Leasehold Reform Bill aimed to address unfair practices in leasehold agreements, which may potentially impact the operations and finances of social housing providers. 

This could result in changes to how they manage their properties and budgets.

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