As of 24 May 2024, the Leasehold and Freehold Reform Act (“the Act”) became law. The purpose of the Act is to improve the rights of homeowners and regulate the relationship between residential landlords and tenants. As of July 2024, the previous government enacted a few amendments to the Building Safety Act; it is for the current government to implement the rest of the Act, which is likely to be completed in stages between 2025 and early 2026. Until then, the current laws are applicable. However, we would like to highlight key changes we believe you should be aware of.
The Changes to come
Lease extensions and the right to acquire the freehold
- It will be cheaper and easier for tenants to make an enfranchisement claim (acquire a share of their freehold). Tenants will no longer be required to pay their freeholder’s costs when doing so.
- The standard lease extension for houses was 50 years and 90 years for flats. This will increase to 990 years for houses and flats.
- Other than in exceptional circumstances, the sale of new leasehold houses will be banned in England and Wales. New houses will be freehold from the outset.
- The Act will remove the requirement for leaseholders to have owned their house or flat for two years before they can extend their lease or buy their freehold.
Building management
- Leaseholders will be allowed to appoint a managing agent of their choice, making it easier and cheaper for them to take over management of their building.
- Freeholders who manage their building will be required to belong to a redress scheme (managing agents are currently required to be), to make it easier for leaseholders to challenge poor practice by freeholders.
- Homeowners who possess properties made up of mixed tenure (freehold and leasehold) will be granted comprehensive rights of redress, so they can receive more information about the charges they pay, and they will have the ability to challenge how reasonable the charges are.
Service charge
- For transparency, freeholders and managing agents will be required to issue standardised bills for service charges to leaseholders. This allows for bills to be easily challenged and scrutinised.
- The Act will scrap the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice and or service charge.
- Excessive buildings insurance commission for freeholders and managing agents will be banned for transparent and fair handling fees.
Ground rent
- Tenants will be able to vary their lease to replace the ground rent for a peppercorn. This will be subject to payment of a premium. The right applies to leases for houses and flats with a remaining term of at least 150 years.
- Varying the lease to replace the ground rent for a peppercorn will be a standalone right. Meaning, tenants do not need to claim a lease extension or enfranchise to exercise this right.
- The buy-out premium will be capped at 0.1% of the value of the property. This is to ensure that the premiums are affordable for the leaseholders.
What does this mean for landlords?
We suggest that residential landlords/freeholders conduct a diligent risk assessment of their property portfolio, as it is important to understand your position and the obligations introduced by the new Act should you face leaseholders who seek to implement their rights.
At AST Hampsons, we are committed to keeping up to date with the Leasehold and Freehold Reform Act and how it affects our clients. For further advice and information, contact Giselle Williams or Mason Mott-Roberts.