The Leasehold Reform becomes law: Transforming home ownership in England and Wales

31 May The Leasehold Reform becomes law: Transforming home ownership in England and Wales

The UK Government has taken a monumental step in transforming the landscape of property ownership by enacting the Leasehold and Freehold Reform Act 2024. This groundbreaking legislation marks a pivotal shift in managing homeownership, offering greater rights, transparency, and protections for millions of homeowners across England and Wales. The passage of this Act is the culmination of years of advocacy, research and legislative efforts aimed at addressing the long-standing issues within the leasehold system.

A historical perspective on Leasehold Reforms

The leasehold system, deeply rooted in the property law of England and Wales, has been a source of controversy and frustration for many homeowners. Traditionally, leasehold ownership involved the purchase of a property for a specified period, typically 99 or 125 years, after which ownership reverted to the freeholder. This system often disadvantaged leaseholders, subjecting them to ground rents, service charges and other fees imposed by freeholders. Over time, these charges have become increasingly burdensome, leading to calls for comprehensive reform.

The journey toward the Leasehold and Freehold Reform Act 2024 began with legislative and advocacy efforts. The Leasehold Reform (Ground Rent) Act 2022 was a significant precursor, eliminating ground rents for new leases and setting the stage for more extensive reforms. This Act was part of a broader government initiative to promote fairness and transparency for leaseholders, responding to recommendations from the Law Commission and extensive public consultations.

The Leasehold and Freehold Reform Act 2024 introduces a suite of measures designed to enhance the rights and protections of leaseholders. Among its key provisions are:

• Extended lease terms: The Act increases the standard lease extension term to 990 years for both houses and flats, significantly improving leaseholders’ tenure security. This provision eliminates the need for repeated lease extensions and the associated costs, providing long-term stability for homeowners.
• Elimination of Ground Rent: Ground rent for extended leases is reduced to a peppercorn (zero financial value), building on the earlier reforms and further reducing financial burdens on leaseholders. This change ensures that leaseholders are not subject to escalating ground rents that can make properties less affordable.
• Removal of Marriage Value: The abolition of the marriage value, a premium paid when a lease extension significantly increases the property’s value, simplifies the process and reduces costs for leaseholders. This change is particularly beneficial for those with leases nearing expiration, who previously faced higher costs to extend their leases.
• Immediate benefits for new leaseholders: New leaseholders no longer need to wait two years before they can extend their lease or purchase the freehold. This immediate eligibility enhances their security and ownership rights from the outset, providing greater flexibility and peace of mind.
• Increased non-residential limit: The Act raises the non-residential limit from 25% to 50% for buildings, allowing more leaseholders in mixed-use developments to buy their freehold or take over building management. This change empowers leaseholders in buildings with significant commercial space to gain greater control over their properties.
• Transparency and fairness in charges: The Act mandates greater transparency in service charges, requiring freeholders and managing agents to provide standardized, detailed bills. This transparency allows leaseholders to scrutinize and challenge unreasonable charges more effectively, promoting fairness and accountability.
• Redress and legal protections: Enhanced access to redress schemes allows leaseholders to challenge poor practices by freeholders and managing agents. Additionally, the presumption that leaseholders must cover freeholders’ legal costs in disputes is scrapped, reducing financial deterrents to pursuing justice.
• Ban on new leasehold houses: The Act bans the sale of new leasehold houses, except in exceptional circumstances. This measure ensures that new houses in England and Wales are freehold from the outset, simplifying ownership and reducing future complications.

Impact and Implementation

The Leasehold and Freehold Reform Act 2024 is expected to revolutionize homeownership for millions by making it easier, cheaper and fairer to manage and own leasehold properties. The provisions of the Act will be implemented in stages, with full enactment anticipated by 2025-2026.

This legislation builds on the foundations laid by the Leasehold Reform (Ground Rent) Act 2022 and represents a comprehensive approach to tackling long-standing issues in the leasehold system. It aligns with the government’s efforts to reinvigorate commonhold tenure and regulate property managing agents to protect leaseholders and freeholders.

The government has committed to ongoing consultations and potential amendments to address these and other emerging issues. This commitment ensures that the reform process remains dynamic and responsive to the needs of homeowners, allowing for continuous improvement and adaptation to new challenges.

Conclusion

The Leasehold and Freehold Reform Act 2024 marks a pivotal moment in the property law of England and Wales, offering enhanced rights and protections for leaseholders. By addressing key issues such as lease extension terms, ground rent and service charge transparency, the Act provides a solid foundation for a more equitable and sustainable property ownership system.

As implementation progresses, homeowners can look forward to a more secure and transparent leasehold system that better serves their needs. For more detailed information on the Leasehold and Freehold Reform Act 2024 and its implications, visit Parliament UK.

Francesco Fasanella MRICS