Our Guide To Leasehold In 2024
19 minute read
Date Published - October 3rd 2024
Date Updated - October 7th 2024
19 minute read
Date Published - October 3rd 2024
Date Updated - October 7th 2024
Navigating the world of leasehold properties can often feel confusing, especially with recent reforms changing the landscape. Whether you're a homeowner looking to extend your lease or considering buying a leasehold property, it's essential to stay informed about your rights and the latest regulations. In 2024, key reforms are making it easier - and sometimes cheaper - for leaseholders to secure their future, but understanding the full impact of these changes is crucial.
In this guide, we’ll break down everything you need to know about the leasehold system and the important reforms introduced by the Leasehold and Freehold Reform Act 2024. From understanding ground rents to extending your lease, we’ve got you covered with all the practical information you need.
If you're feeling unsure about how these changes might affect you, our experienced Leasehold Conveyancing team at GloverPriest Solicitors is here to help. Contact us today for expert advice tailored to your specific circumstances.
A leasehold property means that you own the property, but not the land it stands on, for a set period, known as the lease. The land is owned by a freeholder. When the lease expires, ownership of the property officially returns to the freeholder unless you extend the lease (though this doesn’t necessarily mean you’ll have to move out).
The lease specifies the legal responsibilities and rights of both the leaseholder (tenant or lessee) and the freeholder. The freeholder is responsible for maintaining all the building’s common parts, such as the roof, exterior walls, and staircases.
With many old properties, often the freeholder is no longer alive or cannot be traced and in some cases, property owners do not pay the annual lease amount because of this or the amount is very little.
As the leaseholder, you have to:
If you do not fulfil the agreement terms, you risk losing the property.
According to the Official Statistics on Leasehold Dwellings in 2022-23, there were an estimated 4.77 million leasehold dwellings in England, making up 19% of the housing stock. These dwellings include 2.65 million owner-occupied and 1.82 million privately rented homes. The majority (72%) are flats, while 28% are houses.
Most flats in England and Wales are purchased as leaseholds because flats share common land that needs to be maintained. Some houses are also leasehold due to historical practices where large estates were reluctant to sell land for freehold house building. Houses can also be leasehold if they are purchased through a shared ownership scheme.
Freehold property is a building that you own, including the land. The Land Registry shows your name as the freeholder, and you own the Title Absolute.
Benefits of freehold property include:
However, the cost of maintaining the roof, exterior walls, and land is your responsibility.
Freehold and leasehold are types of property ownership, and they determine whether you will own the entire property or not.
When buying a leasehold property, you need to consider the following:
Yes, it is critical to consider the remaining period in the lease before you buy a leasehold property. The decreasing lease term affects the property resale and mortgage value with time.
Typically, the remaining term on the lease should be a minimum of 80 years to secure a mortgage quickly.
Leases are usually long-term, often 99, 125, or as lengthy as 999 years, but they can also be shorter, especially for previously owned property. The period commences when the freeholder drafts the agreement, and it does not reset when you sell the property to another leaseholder.
The term decreases with time. You can extend the lease, but it can be a costly process.
Buying property is a significant investment; therefore, consulting a professional with experience is advisable before doing so.
Unless you arrange to extend the lease, when it expires, ownership of the property returns to the freeholder. Even if you've paid for the flat or house outright, once the lease ends, you do not own the property anymore. However, you won’t have to leave the property immediately; the tenancy usually continues under the same terms unless either you or the landlord decides to end it.
This is because the property reverts to being freehold, and the ownership automatically transfers back to the freeholder. You will have no legal rights to oppose this once the lease has expired, although steps can be taken to avoid this situation.
Therefore, it’s crucial to know how long the lease lasts before purchasing a leasehold property. The estate agent should provide this information when the property is on the market, but it's better to check directly with the Land Registry. For a small fee, you can obtain a copy of the Leasehold Title, which will show the exact expiration date of the lease.
If your property has a short lease, it’s important to discuss your extension options with an experienced solicitor as soon as possible to avoid potential issues should your lease expire.
If the lease term expires, you typically don’t need to take any immediate action unless you receive a notice from the landlord. To formally end the lease, either you or the freeholder must take specific steps:
If none of these steps are taken, you can continue to live in the property as a tenant. In some cases, you may still be able to extend the lease. However, extending a lease can be a complex and costly process, so it’s essential to seek expert legal advice.
The Leasehold and Freehold Reform Act 2024 has made it easier and cheaper to extend leases, particularly for those with fewer than 80 years remaining, as it has removed the 'marriage value' from lease extension costs.
Yes, you may be able to buy the freehold of your leasehold property. Depending on whether you want to buy the freehold of your leasehold flat or house, there are different procedures.
If you want to buy the freehold of a leasehold flat, then you will need to do this with other flat owners. At least half of the flat owners in the building must also agree to buy the freehold collectively.
For leasehold houses, the process is simpler. Previously, you needed to have held the lease for at least two years, and the lease had to originally be for more than 21 years. However, thanks to the Leasehold and Freehold Reform Act 2024, the two-year ownership rule has been removed. Now, you can start the process of buying the freehold as soon as you acquire the property, without having to wait.
The first step to take is to ask the freeholder if they are willing to sell the freehold to you. If they refuse to do so, you can still start the process of buying the freehold, but it is worth contacting a solicitor first to understand the legal procedures.
Whether you can get a mortgage with a short lease really depends on the lender. Many lenders will not give you a mortgage if you only have 70 years or less left on the lease.
As a rule of thumb, mortgage lenders will normally not lend money on a property that has less than 30 to 40 years left to run after the mortgage expires. In practice, this means if you apply for a 35-year mortgage, you’ll need to have a lease with a minimum of 75 years left on it.
To put it another way, this means that most lenders will not lend on properties with a “short” lease of fewer than 70 years left to run. It’s also worth noting that a property with a lease of less than 80 years is normally considered to be a “short lease” too.
So, if you bought a property with between 80-85 years left to run, you might wish to consider the following:
The recent Leasehold and Freehold Reform Act 2024 has made extending leases easier and cheaper, especially for leases under 80 years, as the Act has removed the 'marriage value' that previously increased the cost of extending short leases.
Unfortunately for leasehold property buyers, it may be that a comparable property that is freehold is less expensive and more straightforward to buy without having to consider or go down the road of extending the lease.
Also, mortgage rates on leasehold properties tend to be higher depending on the length of the lease. It is also worth remembering that conveyancing costs on buying a leasehold property are also usually higher because there is more legal documentation involved with this process. All these considerations can be complicated and expensive, so it’s crucial to get clear and sound legal advice.
Leaseholders in England and Wales now benefit from major reforms under the Leasehold and Freehold Reform Act 2024. This new legislation introduces significant changes designed to make it easier and more affordable for leaseholders to manage and extend their leases.
In January 2023, it was announced that the leasehold system would be abolished entirely by the Conservative Government at the time, but this didn’t go ahead. Instead, the new Leasehold and Freehold Reform Act 2024 has introduced a range of reforms, designed to make it easier and more affordable for leaseholders to manage and extend their leases.
Longer Lease Extensions
The Leasehold and Freehold Reform Act 2024 extends the standard term for lease extensions to 990 years for both houses and flats. This is a significant increase from the previous standard of 90 years for flats and 50 years for houses, providing greater long-term security for leaseholders. In addition, lease extensions concerning houses will be at a peppercorn rent.
Immediate Rights to Extend or Purchase
Leaseholders can now extend their lease or purchase their freehold immediately upon acquiring the property, eliminating the previous requirement of owning the property for two years. This change simplifies the process and offers new homeowners immediate control over their property.
Ban on New Leasehold Houses
The sale of new leasehold houses is now banned, except in exceptional circumstances. This measure aims to phase out the controversial practice of selling houses on a leasehold basis, thereby protecting future homeowners from potential leasehold issues.
Abolition of Marriage Value
The Leasehold and Freehold Reform Act 2024 removes the 'marriage value' from the cost calculation for leasehold enfranchisement. This change makes it cheaper for leaseholders with short leases (under 80 years) to extend their leases or buy their freehold, alleviating a significant financial burden.
Increased Non-Residential Space Threshold
For mixed-use buildings, the threshold for non-residential floor space has been increased from 25% to 50%. This allows more buildings to qualify for collective enfranchisement and the right to manage, benefiting leaseholders in such developments.
Service Charges and Fees Transparency
The Act improves transparency surrounding service charges, introducing standardised forms for service charge accounts and annual reports. It also bans excessive buildings insurance commissions for freeholders and managing agents. These measures aim to empower leaseholders to challenge unreasonable charges and hold landlords accountable.
Redress and Litigation Costs
New provisions mean that landlords will need a court or tribunal order before passing on litigation costs to tenants. Additionally, tenants have the right to claim litigation costs from landlords in connection with relevant proceedings, providing better protection in legal disputes.
Ground Rents
Ground rents have been a longstanding contentious issue, and while the Leasehold Reform (Ground Rent) Act 2022 introduced significant restrictions, the Leasehold and Freehold Reform Act 2024 further solidifies these changes.
The 2022 Act, which applies to regulated leases, capped ground rents for new long residential leases at a nominal peppercorn rent (effectively zero financial value). This applies to all new lease agreements and lease extensions, providing leaseholders with greater financial relief by preventing landlords from charging escalating ground rents.
However, for existing leases, the 2024 Act does not abolish or retroactively cap ground rents. Existing leaseholders will continue to pay ground rents as stipulated in their original contracts. There is ongoing debate about whether ground rents for current leases should be phased out, and while no immediate changes have been made for existing leases, proposals for a gradual reduction to a peppercorn rate over a 20-year period have been discussed. This gradual reduction would provide relief while minimising the financial disruption for freeholders and investors who depend on these rents.
The combination of these acts ensures that new leases offer more protection to leaseholders while maintaining the current framework for older leases, though further developments may still occur as discussions on ground rent reform continue.
The Leasehold and Freehold Reform Act 2024 has now been passed, but many of its provisions will be implemented through secondary legislation. The full effects of the Act will likely be phased in over the next few years, with complete implementation expected by 2026.
It is unlikely that the leasehold system will be entirely abolished. Although the government previously considered this, they have now introduced reforms instead, which are intended to address the primary issues faced by leasehold property owners. These reforms should resolve many of the common problems without removing the leasehold system altogether.
If you're a leaseholder and are unsure how these changes may affect you, it is advisable to consult with a leasehold specialist. They can provide tailored guidance based on your specific circumstances and help you understand how the new law might impact your property.
These reforms mark a significant shift in the leasehold landscape, providing fairer, more transparent, and secure arrangements for leaseholders across England and Wales.
The Leasehold Reform (ground rent) Act 2022 came into force on 30th June 2022 and stopped freeholders of leasehold properties from charging ground rents for new long residential leasehold properties. There could be fines of up to £30,000 where ground rent is charged and it should not be.
New long residential leasehold properties that are governed by the Act cannot be legally charged ground rent for the property. Administrative fees for collecting ground rent will also be stopped.
Leaseholders are those who own interest in leasehold property. These properties usually have a freeholder or a “landlord” which is the person/company with superior interest in the property.
Usually, with leasehold properties, annual ground rent is charged to the leaseholder, however, this has led to people paying increasing rents each year with no clear idea of why and no service in return.
Under the new Act, leaseholders that enter into a voluntary lease extension will be reduced to a “peppercorn”, which means that no charge can be requested.
“Ground rent” is a legal term that basically means a payment of rent. In long leases of 21 years or more, it is common for someone who owns a leasehold property to pay this rent each year. But the problem is that the landlord (the overall owner of the leasehold property) does not need to give a clear service in return for the rent.
“Regulated leases” is what the new Act is referring to. These are leases of more than 21 years for a single house or flat granted after 30th June 2022. Therefore, those who buy a new leasehold property (covered by the Act) will not be required to pay ground rent.
Under the Leasehold Reform (ground rent) Act 2022 there are the following exceptions:
In response to the tragic Grenfell Tower disaster, the government introduced the Building Safety Act 2022 to make sure that buildings across the UK are safer for the people living in them.
The UK government launched the Building Safety Programme to tackle these safety issues, and the Building Safety Act 2022 was a key outcome of this effort.
This Act puts more responsibility on building owners, managers, and developers, making sure that properties are not only built to higher standards but are also properly maintained to keep residents safe.
The Act came into force in April 2023 and has a significant impact on anyone buying or selling homes, especially leasehold properties. To comply with the new legislation, conveyancers must now provide mortgage lenders with confirmation that the properties adhere to the requirements of the Act.
The Building Safety Act 2022 is focused on improving the safety of residential buildings that are 18 metres or higher or have four or more storeys. The Act introduces new rules that require building owners to assess and manage risks, particularly when it comes to fire and structural collapse.
Key requirements include:
For those involved in buying or selling leasehold properties, the Building Safety Act brings some important changes. Conveyancing solicitors handling these transactions need to be more thorough when carrying out due diligence on leasehold buildings.
Solicitors must make sure they gather all the necessary details about the building’s safety and whether it meets the new regulations before any deals can proceed.
According to Section 5 of the Lenders' Handbook, mortgage lenders will want to ensure the property meets their criteria. This could involve getting a professional valuation and a copy of the lease agreement.
Since the Act stresses the importance of meeting certain safety standards, conveyancers may need to confirm with the seller’s solicitor that the building is compliant. This might include checking if any modifications have been made under the Building Safety Act 2022, as well as obtaining Landlord's Certificates and Leaseholder Deed of Certificate to confirm the building’s safety.
When calculating the cost of extending a lease, several factors come into play. These include the premium paid to the freeholder, land registry fees, and your legal and valuation costs, alongside those of the freeholder.
You are still required by law to cover your freeholder’s legal and valuation costs when extending your lease. It’s recommended to extend the lease before it drops to 80 years or fewer, as the value of the lease decreases significantly below this point.
Previously, extending a lease after it hit 80 years triggered the marriage value, which increased the cost by requiring leaseholders to pay 50% of the increase in value resulting from the extension. However, with the introduction of the Leasehold and Freehold Reform Act 2024, the marriage value has been abolished. This change makes it more affordable to extend a lease even when it falls below 80 years, removing what was previously a significant cost burden for leaseholders. Now, extending a lease between 80 and 90 years or even below 80 years will not incur this additional cost.
The cost of the lease extension premium can still vary and is subjective. Surveyors may have different interpretations, and solicitor fees can fluctuate. Therefore, it’s important to consult with professionals who can provide accurate cost estimates based on your property’s specifics.
You will need to get a new valuation of the property when extending the lease, which means hiring a qualified surveyor. It’s essential to work with a surveyor registered with the Association of Leasehold Enfranchisement Practitioners (ALEP) and the Royal Institution of Chartered Surveyors (RICS) to ensure an accurate and professional valuation.
Once you and the freeholder agree on the price of the lease extension, you’ll typically need to pay a deposit, which is usually 10% of the total extension cost. If you and the freeholder cannot agree on a price, you have the option to take the matter to a First-Tier Tribunal, where they will determine the final cost of the extension.
At GloverPriest, our skilled conveyancing solicitors can offer expert guidance on lease extensions, freehold purchases and navigating legal complexities. We provide clear and friendly legal advice to help you make informed property decisions.
For further help with your leasehold property, reach out to our expert conveyancing lawyers. Complete our enquiry form to get in touch.
Based on the 2024 Leasehold and Freehold Reform Act, the right of the freeholder to refuse leasehold extensions has been significantly altered. According to the Act, leaseholders now have an automatic statutory right to extend their lease for up to 990 years, removing many of the previous barriers.
The Act abolishes the requirement for leaseholders to have occupied the property for more than two years before seeking a lease extension. Additionally, freeholders cannot refuse a lease extension once a formal process is initiated, which includes serving the proper notice. Therefore, under the 2024 reforms, freeholders no longer have the discretion to refuse a lease extension under statutory terms.
This change provides greater security and standardisation for leaseholders across the UK.
As there are many steps involved in extending your lease, it could take anywhere from 2 to 12 months to extend your lease and a further 3 to 12 months for the lease extension to be registered at the Land Registry.
There is a statutory process that influences how long the lease extension process takes. Firstly, the freeholder should receive the Section 42 notice which is a formal request to extend the lease. They will then have 21 days to request evidence to see that the leaseholder has a legal right to a formal lease extension.
After that, the freeholder has two months to respond with a counter-notice. Once this is served, the leaseholder has six months to negotiate the premium cost. If there are any disputes about the premium, you can apply to the First-Tier Tribunal to resolve the issue. Once the premium is agreed upon, the extension process is finalised.
If you want to extend a lease, you will need to instruct a surveyor to calculate the property’s value. A valuation is necessary to be able to extend your lease to calculate the amount payable to the freeholder.
The surveyor should be registered with the Association of Leasehold Enfranchisement Practitioners (ALEP) and the Royal Institution of Chartered Surveyors (RICS).
When a leasehold expires, ownership goes back to the freeholder. This doesn’t mean you have to move out right away. The freeholder might let you stay and charge you rent, or they could decide to take back the property, but they must give you notice.
You can extend your lease by negotiating directly with the freeholder or through a formal legal process. This involves serving notice and agreeing on terms and costs. GloverPriest’s expert solicitors can assist with negotiations and guide you through the process.
The cost of buying the freehold depends on factors such as the property’s value, the remaining lease term, and other factors. You’ll need to cover the purchase price plus fees for valuation and legal services.
A deed of variation is a legal document that changes your lease terms. This might include extending the lease, changing ground rent, or updating other conditions.
With a leasehold, you own the property for a set number of years but not the land it’s on. You pay ground rent and service charges to the freeholder. When the lease ends, the property returns to the freeholder unless you extend the lease.
If you have been charged ground rent on a new leasehold property where the lease was granted after 30th June 2022, this may be prohibited rent. In this case, you should ask the landlord/freeholders to return the amount that you paid within 28 days. If they fail to do so, they may be liable for fines.
If you would like to seek further legal advice regarding prohibited ground rent, please do not hesitate to contact us.
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