22 August 2024

The leasehold and freehold reform act 2024: Good news for leaseholders

By John Perry, Solicitor, Hayes + Storr.

Recent legislation in the form of the Leasehold and Freehold Reform Act 2024 (the Act) became law on 24th May 2024, having received Royal Assent. The new legislation is set to significantly improve the position for homeowners in England and Wales and aims to address the perceived imbalance and unfairness in the relationship between leaseholders and their landlords.

While certain provisions in the Act relating to building safety take effect from 24th July 2024, those relating to leases are to be rolled out later through secondary legislation. As the Act introduces changes across a vast area of property law, this article summarises the changes affecting long residential leases.

First, a brief explanation on land ownership. Freehold tenure is the outright ownership of land for unlimited time and all immovable structures attached to such land. Leasehold tenure is the holding of land from the freehold owner for a fixed number of years (the term) on payment of rent. A freeholder owner of land who has leased land is known as the landlord.

When the lease term expires, the lease comes to an end and the property returns to the landlord. As the lease term reduces, value in the property diminishes for the leaseholder and increases for the landlord. Previous legislation has made it possible for a leaseholder to extend the term by submitting to the landlord a claim for a new lease. The right to claim a new lease is subject to the leaseholder having owned the property for a minimum of two years. The leaseholder must compensate the landlord for their loss by paying a premium and is obliged to pay the landlord’s legal and surveyor’s costs (in addition to their own).

The Act abolishes the previous two years ownership requirement and increases the length of time by which a lease can be extended from the current 50 years (for houses), and 90 years (for flats), to 990 years. In essence, this transfers the value in the property from the landlord to the leaseholder. In calculating the premium payable by the leaseholder to the landlord, the act removes what is termed ‘marriage value’ thus making the process significantly cheaper for the leaseholder. A new costs regime will mean each party bears their own costs.

It is the practice of some developers to grant leases for houses, where the tenure could well have been freehold. The Act introduces a ban on new leasehold houses and the right for existing leasehold house owners to reduce their ground rent to a peppercorn (nominal sum). This will bring houses into line with flats, where lease extensions must be at a peppercorn rent.

The Act is subject to certain exceptions (e.g. shared ownership leases) but does much to enhance the rights of homeowners when dealing with landlords (to include their management companies). While commencement dates to implement the Act are awaited, leaseholders can take comfort from the King’s Speech of 17th July which sets out the intention of the Government to implement the provisions.

If you would like more information, contact John Perry in our residential property team on 01328 863231 or email john.perry@hayes-storr.com.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.