Leasehold Reform Bill Passed, but Ground Rent remains

The Leasehold Reform Bill has been in the making for some time now, with many leaseholders and freeholders anticipating its arrival.

Finally, in May 2024, Reform has arrived but, to many, its not what was expected.

In this article, Leasehold Property Partner Niki Adkins breaks down the main changes the act brings and what it means for you.

Has the leasehold reform bill been passed?

Yes, as of 24th May 2024 the Leasehold Reform Bill officially received Royal Assent and became law.

It was one of the last pieces of legislation to do so before Parliament was shut down ahead of the upcoming general election.

When will the leasehold reform act take effect?

As of this article’s publication, it has not been made clear when the act will actually take effect.  Neither has the final, amended version of the act been released.

If and when we are given a definitive date, we will make sure to update you as soon as possible. To stay in the loop, you can sign up to our leasehold newsletter here.

What will the leasehold reform act do?

The key provisions of the act (among other things) are:

  • Reduce the premium payable by leaseholders either extending their leases or buying their freeholds where their lease has less than 80 years left
  • Increase the standard lease extension term to 990 years for both houses and flats (up from 50 and 90 years respectively)
  • Introduce obligations for freeholders to make service charge bills standardised, so they can be ‘more easily scrutinised and challenged’
  • Give leaseholders the right to appoint a managing agent of their choice
  • Remove leaseholders’ obligations to pay their freeholder’s costs in enfranchisement and lease extension claims
  • Require freeholders to join a redress scheme so leaseholders can challenge them on poor practice
  • Bring forward a maximum time and fee for home buying and selling information
  • Grant homeowners on private and mixed tenure estates rights of redress, so they receive more information on the charges they pay and are given the ability to challenge these charges

According to the Government, the act will also:

  • Scrap the presumption that leaseholders pay freeholders’ legal costs when challenging poor practice
  • Ban ‘excessive’ buildings insurance commissions for freeholders and managing agents
  • Ban the sale of new leasehold houses, so every new house in England and Wales will be freehold from the start
  • Remove the obligation on leaseholders to have owned their property for two years before extending their lease

Has ground rent been abolished?

Despite all of the above changes being made to leasehold law, there were a few notable omissions.

Most notably, ground rent was not abolished, and a £250 cap wasn’t introduced. This means that existing leaseholders will still face the same issues as they have for years, despite it being proposed that the act should ban it all together.

This will come as a major disappointment to leaseholders with high ground rents but a relief for freehold-investors.

Some of the provisions in the reform act will be somewhat of a silver lining for leaseholders though, as its now easier to extend your lease/buy the freehold. In doing so, they will be able to reduce their ground rent to a peppercorn (i.e. nothing).

Related: Why are increased ground rents such an issue for leaseholders?

What does the leasehold reform act mean for leaseholders?

It has removed some of the previous obstacles to leaseholders obtaining a lease extension or buying their freehold by reducing the price payable and making the transactions available to more leaseholders.

It is a further, assisting step for leaseholders following the Leasehold Reform (Ground Rent) Act 2022 which prevented ground rents being imposed in completely new leases and limited what freeholders can do in lease extensions that are agreed outside of the present legislation.

Is now the best time to extend my lease?

If a leaseholder has a lease of less than 80 years remaining, it may be beneficial to wait for the legislation to take effect.  We cannot advise on valuation matters, so would recommend that leaseholders obtain specialist valuation advice, which we can arrange.

If you do wait to extend your lease, under the new law, you’ll be able to extend for 990 years instead of just 90, and can potentially avoid having to cover your freeholder’s costs.

Related: Why you need to extend your lease and how to go about it

What does the leasehold reform act mean for freeholders?

Unfortunately, it is somewhat of a bleak outlook for freeholders who will no longer receive the levels of premium they have been used to for lease extensions and freeholds.

Further, they will also now have to cover their legal and valuation fees in most such transactions which they have not previously had to do.

Related: Can I be forced to sell my freehold?

Leasehold Property Specialists

At Frettens, our dedicated Leasehold Property Team is one of the largest and most experienced in the area. We would be happy to provide tailored advice on what the reform bill means for you.

In addition, we are able to provide assistance for both leaseholders and freeholders in any matter, such as lease extension, enfranchisement etc.

You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial chat.

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