On 24 May 2024, the former Leasehold and Freehold Reform Bill 2023-24 (LFRB 2023) received Royal Assent to now be enacted in UK law as the Leasehold and Freehold Reform Act 2024 (LFRA 2024).
In the UK, residential property ownership falls under two categories, freehold – in which the owner has total ownership of the property and the land it sits on – or leasehold – where the homeowner does not own the land but leases the land instead and pays a rent or service charge to the freeholder. Leasehold ownership is common with blocks of flats and many newer housing developments.
The new reform is designed to enhance the rights of residential long leaseholders in England and Wales through a series of significant reforms. Shahar Sadat from Sweeney Miller Law’s Commercial Property department looks at some of the key provisions in the legislation and their impact on homeowners.
Prohibition of new long residential leases
The Act bans the granting of long residential leases for houses, except under specific permitted exceptions.
Enhanced rights for residential leaseholders
The Act augments and increases the rights of residential leaseholders in relation to service charges, insurance payments, administration charges, provision of sales information upon assignment, and reduces leaseholders’ liability for litigation costs.
Extended lease terms
The standard lease extension term has been increased to 990 years for houses and flats as opposed to previous limitations of 50 years for houses and 90 years for flats.
Right to manage (RTM)
The threshold preventing leaseholders from enforcing the right to manage the freehold of their building has been increased. Previously if there was a portion of the floor space that was a non-residential element (for example a shop or a gym) that occupied more than 25% of the total space, then they would not be able to exercise a right to manage the freehold. This has been increased to 50% enabling more leaseholders to access RTM or the right to a collective enfranchisement (i.e the ability to buy the freehold with the other leaseholders).
Elimination of ownership period requirement
The Act removes the requirement for leaseholders to have owned their leasehold property for two years before they can extend their lease or purchase the freehold. This requirement led to a number of purchases of leasehold properties incurring additional legal costs for service of notices and assignments of the benefits from the seller to the prospective buyer. This can now be avoided altogether and, more importantly, can save a lot of money for leaseholders in certain circumstances.
Regulation of estate management charges
The LFRA 2024 provides freeholders with protections comparable to those enjoyed by residential leaseholders with regards to estate management charges. Landlords and estate management companies managing properties or estates must now sign up to a compulsory redress scheme.
Scrapping the presumptions
The Act aims to provide clarity regarding the presumption that leaseholders pay the freeholders’ legal costs when challenging poor practice, something that has been a deterrent when leaseholders want to challenge their service charges.
Historic rent charges
The Act regulates demands and modifies remedies for the non-payment of historic rent charges, which have not been creatable since 22 August 1977.
A property lawyer’s view
These reforms are poised to provide leaseholders with greater control and protection, thereby having a profound impact on leasehold and freehold transactions in England and Wales. Commenting on the new legislation, Shahar said: “Whilst it is a watered-down version of the Bill as it was originally proposed, the Leasehold and Freehold Reform Act 2024 represents significant advancements in the legal and financial protections primarily for the benefit of residential leaseholders. By extending lease terms, eliminating barriers to lease extensions and enfranchisement, and regulating estate management charges, the Act promotes fairness and transparency within the housing market.”
Expert advice
At Sweeney Miller Law our expert property team has extensive experience in dealing with all types of transactions for individuals, businesses and landlords.
If you have any queries relating to the Leasehold and Freehold Reform Act 2024 or any aspect of property law, get in touch by calling 0345 900 5401, emailing enquiries@sweeneymiller.co.uk or visit www.sweeneymiller.co.uk