Leasehold Reform: What the Changes Mean for Leaseholders

 

Leasehold Reform: What the Changes Mean for Leaseholders

The landmark Leasehold and Freehold Reform Act 2024 received royal assent at the end of May.

The new legislation, which was the final Bill to be passed before Parliament was dissolved ahead of the upcoming general election, will introduce significant changes for owners of leasehold properties in England and Wales.

In this blog, our specialist Conveyancing Solicitors look at the new law and consider its impact for leaseholders.

What is the new leasehold law in 2024?

The Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, the second part of the Conservative government’s pledge to overhaul the leasehold system of property ownership in the country by making it fairer and more secure.

It follows on from the Leasehold Reform (Ground Rent) Act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales and was introduced at the end of June 2022.
The government hopes that by introducing legislation that will “improve consumer choice” and “crack down on unfair practices”, the reforms will give leaseholders “more rights, power and protections over their homes”.

Criticism has been levelled at the leasehold system for some time, with Michael Gove, the Secretary of State for Levelling Up, Housing and Communities describing it in 2023 as “feudal and outdated”.

However, despite hopes that the government might abolish the leasehold system entirely, the Leasehold Reform Act does not go as far as many would have liked. Some observers believe it fell foul of being passed in the “wash up” period of the current Parliament, and therefore failed to receive the time or attention it deserved.

What is the difference between leasehold and freehold?

There are two main ways of owning a property in England and Wales.

1. Freehold. With a freehold, you own the property and the land it’s built on, including any outdoor spaces such as a garden. You don’t have to pay ground rent or any maintenance fees and there are no leases involved. The property is yours for as long as you want. Most houses are freehold.

2. Leasehold. For leasehold, you buy the property, but not the land it sits on. The land is still owned by the freeholder, who is selling the property for a set period of time, as set out in a lease agreement. Most leases are between 125 and 999 years, and leaseholders can often extend the term left on their lease, but when it ends, ownership reverts to the freeholder.

Communal areas are the responsibility of the landlord and leaseholders usually pay a service charge for the upkeep, in addition to ground rent.

Flats and maisonettes are usually leasehold.

What are the downsides of leasehold?

Leaseholders do not enjoy as much security or freedom over their homes as owners of freehold properties. Some common disadvantages of leasehold properties include:

1. Excessive charges. Many leaseholders have seen an increase in the amount of ground rent and maintenance fees they have to pay in recent years, without a similar rise in standards or services, with appeals over spiralling costs proving costly and often difficult to bring.

2. Limited decision-making control. Leaseholders must usually ask the permission of the freeholder if they want to make changes to their home, such as whether they can keep a pet or sublet.

3. Difficult to sell. Leasehold properties are harder to sell, particularly if they have short leases.

4. Issues securing a mortgage. Most mortgage lenders won’t lend on properties with a lease shorter than 70 years.

5. Hard to extend lease. The process involved in extending a lease or purchasing a share of the freehold (known as enfranchisement) is complicated, with leaseholders having to shoulder the costs.

What are the changes for leaseholders in 2024?

Although the Leasehold Reform Act does not go as far as some had hoped and, most notably, does not include a cap on ground rent as was originally promised, it is still an important legislative development that brings some significant changes for leaseholders.

Some of the main changes for leaseholders introduced by the Leasehold Reform Act 2024 include:

• Increases the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats).
• Gives leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format.
• Makes it cheaper for leaseholders to exercise their enfranchisement rights as they will no longer have to pay their freeholder’s costs when making a claim.
• Extends access to redress schemes for leaseholders to challenge poor practice.
• Makes buying or selling a leasehold property quicker and easier by setting a maximum time and fee for home buying and selling information.
• Scraps the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges.
• Bans opaque and excessive buildings insurance commissions for freeholders and managing agents.
• Bans the sale of new leasehold houses so that, other than in exceptional circumstances, every new house in England and Wales will be freehold from the outset.
• Removes the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy their freehold.

It is important to note that while the Leasehold and Freehold Reform Act 2024 has been passed, it has not yet come into force. The exact timings of when the new rules will come into effect depends on the results of July’s general election, although most of the reforms are expected to be rolled out over 2025 and 2026.

Lease Extension Solicitors

If you are a leaseholder, and want to know how you will be affected by the Leasehold and Freehold Act 2024, get in touch with Bookers & Bolton.

We are a Conveyancing Quality Scheme accredited firm offering specialist advice and guidance on all lease extension matters to clients across Alton, Hampshire and beyond.

We provide quality legal advice to leaseholders on many different legal issues and can advise on conveyancing of leasehold properties, enfranchisement rights and lease extension issues.

Our lease extension legal service for leasehold properties includes:
• Checking and advising on the terms of the new lease.
• Checking and approving documentation prepared by the freeholder and requesting amendments.
• Carrying out the necessary conveyancing process on the new lease.

To speak to a member of the team, call 01420 82881 or email enquiries@bookersandbolton.co.uk.

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