Leasehold and Freehold Reform Bill likely to become law later this year

Published on 15.05.24
Published on 15.05.24

The Leasehold and Freehold Reform Bill is currently making its way through parliament and recently completed its third reading in the House of Commons. It’s a long and complicated piece of legislation that, once in force, will make significant changes to lease extensions, enfranchisement and service charges. In this article, we highlight some of the key provisions.

  1. Leasehold enfranchisement and lease extensions

The new Act will make it easier for leaseholders to extend their lease or purchase their freehold. The standard lease extension will increase from the current 90 years to 990 years and will be at a peppercorn rent. The requirement for a leaseholder to have owned their property for two years before they can benefit from these rights is being removed.

  1. Increase of non-residential limit

Leaseholders in buildings with up to 50% non-residential floorspace will be able to buy their freehold or take over the building’s management. Currently, the figure is 25%, so more mixed-use buildings will fall within the enfranchisement rules in the future.

  1. Marriage value

The so-called ‘marriage value’, which makes it more expensive to extend leases when they are close to expiring, is being removed.

  1. Tenants’ rights to replace ground rent

Leaseholders will be able to vary their leases to replace their ground rent with a peppercorn rent in return for a premium. They will be able to do this without having to extend their leases.

  1. Service charge transparency

Service charge demands will need to be in a specific form and served in a specific way, or the sums demanded will not be due. There will be a new right for leaseholders to demand specific information from landlords, and they will also be able to inspect service charge invoices and receipts.

  1. Insurance commissions

Landlords will not be able to recover costs relating to placing and managing insurance via the service charge (ie charging building insurance commissions under the service charge); leaseholders will only have to pay the insurance premium itself.

  1. Long residential leases

Long residential leases of houses (ie of more than 21 years) will no longer be permitted. There will be some permitted exceptions, including some retirement housing leases, community housing leases, leases granted out of historic leasehold estates and leases of some National Trust properties.

  1. Building Safety Act

The Bill includes some amendments to the Building Safety Act to strengthen protections for leaseholders. You can read more about the Building Safety Act here.

Progress of the Bill

The Bill is expected to progress through parliament rapidly over the next few months as the government is keen to pass this legislation before the next general election.

However, it should be pointed out that while the government is keen to push forward with these reforms, there has been push back against them by landlords and there are some indications recently that the legislation may be watered down.

We will set out a more extensive review of the Act and any changes to the above as and when it becomes law, probably later this year.

If you have any queries about lease extensions, enfranchisement or service charges, please contact Daniel Broughton at [email protected].

Disclaimer: The above is merely general guidance and should not be relied on as formal advice. We suggest you take professional legal advice before taking any action in relation to the issues discussed above.