5 Things Freeholders and Leaseholders Should Know About the Leasehold and Freehold Reform Act
The Leasehold and Freehold Reform Act presents both opportunities and challenges for landlords. Rushed through Parliament before its dissolution ahead of the 2024 General Election, many details are left to secondary legislation, which will be addressed after a new government is elected. The Act received Royal Assent and became law in May 2024.
What is the Leasehold and Freehold Reform Act?
The Act introduces several reforms aimed at enhancing existing consumer rights for homeowners and establishing new ones.
Key Changes to Leasehold and Freehold Laws Landlords Should Be Aware Of
1. Increased Standard Lease Extension Terms
Leaseholders can now extend their lease terms to 990 years, significantly reducing the need for future extensions. This applies to both houses and flats, increasing the previous limits of 50 and 90 years, respectively.
However, changes to lease extension activities may not take effect until 2025/26, as the Act does not specify valuation rates, which determine the cost of lease extensions and freehold purchases. These rates, currently set at market value, will likely require secondary legislation.
2. Greater Transparency Over Service Charges
Freeholders or managing agents must now issue bills in a standardised format, improving transparency and making it easier for leaseholders to scrutinise service charges. Managing agents must provide a full breakdown of costs, allowing leaseholders to challenge any charges they believe are incorrect. Freeholders and managing agents must now justify their charges.
3. Scrapped Legal Costs for Leaseholders
The Act removes the assumption that leaseholders must cover their freeholders' legal costs when challenging unreasonable charges or poor practices. This change is expected to increase the number of disputes over service charges, as leaseholders face lower financial risks when contesting fees.
4. Removed Ownership Requirement for Lease Extensions
Previously, new leaseholders had to own their property for two years before being eligible to extend their lease or buy the freehold. This requirement has been eliminated, meaning leaseholders can now act immediately upon purchase.
For landlords, this change may increase administrative tasks and legal considerations during property sales.
5. Ban on the Sale of New Leasehold Houses
The sale of new leasehold houses is banned, except in exceptional circumstances. This means that every new house in England and Wales must be freehold from the outset, simplifying property transactions and eliminating leasehold-related complications.
Secondary Legislation
Much of the Act relies on secondary legislation, which will allow ministers or other bodies to:
- Fill in missing details from the primary legislation
- Set dates for different provisions to take effect
- Amend existing laws
Future reforms may include ground rent caps, depending on the new government's priorities.
Conclusion
The Leasehold and Freehold Reform Act brings significant changes, covering areas such as:
- Lease extensions
- Service charges
- Legal costs
- Leaseholder rights
- Freehold purchases
However, many of these reforms won't take effect until at least 2025, as they require further legislation and consultation. Both landlords and leaseholders should stay informed, as implementation will occur in stages under the next government.
