When did the Act become law?
The Leasehold and Freehold Reform Act received Royal Assent on 24th May 2024 with sections going “live” two months later and others to become effective in the next Parliamentary term.
What is the purpose of the Act?
The Act seeks to improve consumer rights for homeowners, by strengthening existing rules and introducing fresh rules.
How will leaseholders benefit?
A whole raft of new rules have been brought in. The headlines are that it will now be easier and supposedly cheaper for leaseholders to purchase their freehold from Landlords and exercise their new right to extend their leases, to standard terms of 990 years, paying a nominal ‘peppercorn’ in annual ground rent. (Currently extended for just 90 years for flats and 50 for houses). This will provide real certainty and security for leaseholders, avoiding the stress and expense of having to seek extensions for some considerable time.
Landlords will also be compelled to provide tenants with greater transparency in respect of their Service Charges demands and streamline any tenant’s ability to challenge their validity in the First Tier Tribunal.
On that subject, the presumption that leaseholders should be responsible for their Landlords legal costs, is removed under the Act. This can sometimes be a deterrent against bringing such claims. Conversely, it increases the pressure on Landlords to eradicate poor practice.
As an alternative the Act enables leaseholders to take over the management of their block or building and if preferred appointing alternative Managing Agents of their choosing.
Should leaseholders wish instead to purchase their freeholds, they no longer have to have been owners for a qualifying 2 year period, nor have to discharge the Landlord’s costs when making application. That should concentrate minds, accelerate the process and reduce costs.
Going forward a ban will also be placed on the sale of new leasehold houses unless in exceptional circumstances, so that every new home will be freehold from the outset and free from the burden of Ground Rents and Service Charges.
What is Marriage Value? Has it been scrapped?
In essence ‘marriage value’ means the increase in the total value of the property once the lease has been extended. It constitutes the financial benefit or profit arising from merging the Landlord's and leaseholder's interests, hence the term 'marriage'. Previously for those leases with a remaining term of 80 years or less, you were obliged to split its value 50/50 with your landlord upon extension. This was considered a partial bar to leaseholders seeking to extend their lease. It was perceived to be unfair and has now been abolished under the Act.
This element of the Act is however very contentious and is likely to be challenged in Strasbourg under the ECHR as a breach of Landlord’s human rights. As it currently stands, it may result in reducing the premium paid to the Landlord to extend a lease by a not insignificant third to two thirds.
In addition the ability to secure a much longer term of the lease, with greater ease and at lower cost, will increase the property’s value and its future sale ability from the Leaseholder’s perspective.
When should I seek to extend my lease?
Unhelpfully the Act has failed to define the ‘deferment’ and ‘capitalisation’ rates used to determine the premiums to be paid to the Landlord on extending or enfranchising the lease. Those formulas will need to be set by Parliament, once any fresh government has its feet under the table. In reality, it may not be until 2025 or 2026 that those rates are set depending on any new Government’s priorities. As a rule of thumb, the shorter the existing lease term, the greater pressure to proceed with the extension process. It may be better to secure the certainty of outcome at this stage, rather than awaiting the eventual outcome in calculating payment formulas.
Get in touch with our Leasehold Extension and Enfranchisement team
If you are a leaseholder or Landlord affected by this new legislation our Conveyancing team is on hand to support you through the processes.
To discuss how we can help, please contact your local Kingsfords office in Ashford, Cranbrook or Hythe.
Alternatively, you can send an enquiry and a member of our team will get back to you promptly, by calling us on 01233 665544 or emailing via kld@kingsfords.net If you want to learn how much extending a lease or enfranchising might cost, we can provide an estimate with no obligations.