Leasehold Liberation: The Dawn of a New Era in Property Ownership

In a landmark move set to reshape the landscape of property ownership in the United Kingdom, the Leasehold and Freehold Reform Act 2024 has received Royal Assent. One of the final legislative measures to navigate through Parliament’s wash-up on Friday May 24^th, before its suspension for the general election, has been characterised as a “muted win”. While the legislation brings clarity on charges and implements a prohibition on leasehold houses, it missed the chance to incorporate a cap on existing ground rents.

The Leasehold and Reform Act 2024 marks a significant change in property law and introduces several key reforms designed to make homeownership fairer and more transparent for millions of leaseholders.

Key provisions include:

1.  Abolition of Ground Rent for New Leases:

The Act abolishes ground rent for new residential leases, making it effectively zero. This change is designed to stop the practice of freeholders charging excessive ground rents, which have been a significant financial burden on leaseholders.

2.  Right to Extend New Leases:

The new law simplifies the process for leaseholders to extend their leases. Leaseholders of residential properties now have the right to extend their lease by 990 years with zero ground rent, significantly improving the security of their tenure and the value of their properties. This extension right is a considerable improvement from the previous statutory right, which allowed for a 90-year extension.

3.  Abolition of the 2-year Period of Ownership:

The current position is that leaseholders must wait two years before they can extend their lease or purchase the freehold of their house. However, an exception allows them to initiate a lease extension and “assign” it to a buyer. This 2-year waiting period has been removed in the new Act. This will simplify the sale process where the buyer would otherwise insist that the seller makes a claim for an extension lease and assign the benefit of the claim to the buyer.

4.  Reduction of ‘Marriage Value’:

The concept of ‘marriage value’ – the additional value created by merging the freehold and leasehold interests – has been overhauled.

The Act removes the obligation to pay this often substantial cost for lease extensions where the lease has less than 80 years remaining. This change is expected to significantly lower the costs for many leaseholders seeking to extend their leases.

5.  Standardised Leasehold Charges:

To enhance transparency, the Act introduces standardised methods for calculating lease extension premiums and other associated costs. This standardisation aims to reduce disputes and make the process more predictable and fairer for leaseholders. However, full details of the methods proposed are still awaited.

6.  Freehold Acquisition:

The Act streamlines the process for leaseholders to purchase their freehold, making it more accessible and affordable. This provision aims to liberate homeowners from the constraints of leasehold tenure, offering them full ownership rights over their properties.

7.  Ban on Sale of New Leasehold Houses:

With limited exceptions, the Act prohibits the sale of new leasehold houses, promoting freehold ownership and eliminating onerous leasehold arrangements for prospective homeowners.

For leaseholders, these reforms bring greater financial stability and security in their homes. The abolition of escalating ground rents and the ability to secure long-term lease extensions at no extra cost are particularly impactful.

However, it’s important to note that while the Act has received Royal Assent, its full implementation may take time. Additional regulations and secondary legislation are required to bring the provisions into effect, with some changes not expected until 2025 or 2026. Furthermore, challenges from the freehold community and potential legal disputes may delay the process further.

In conclusion, the Leasehold and Freehold Reform Act 2024 represents a significant milestone in the journey towards a fairer and more equitable housing system. With its emphasis on empowering homeowners, promoting transparency, and enhancing consumer rights, the Act heralds a brighter future for homeownership in the UK.

To ensure that you have appropriate guidance while navigating these and other property issues, contact  Rufus Ballaster, Chris Picardo or Fotini Leventi in the property department today at RufusBallaster@cartercamerons.com, ChrisPicardo@cartercamerons.com, FotiniLeventi@cartercamerons.com for advice and support.