What are the new reforms for leaseholders?

Leaseholders in England and Wales are set to benefit from major reforms under the Leasehold and Freehold Reform Bill 2024. This legislation introduces a range of 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 completely by the then Conservative Government, but this is no longer going ahead. Instead, reforms will be put in place, designed to make it easier and more affordable for leaseholders to manage and extend their leases.

For expert guidance on how these reforms affect you, speak to one of our experienced conveyancing solicitors today. Complete our enquiry form to get started.

What is a Leasehold Property?

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 returns to the freeholder unless you extend the lease.

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.

Leasehold vs Freehold

Leasehold:

• You own the property for the duration of the lease agreement.
• When the lease ends, ownership reverts to the freeholder unless extended.
• Leaseholders usually pay annual ground rent, service charges, and maintenance fees.

Freehold:

• You own the property and the land it stands on outright.
• Freeholders have full control over and responsibility for the property.
• No annual ground rent or service charges apply.

Key Provisions of the Leasehold and Freehold Reform Bill 2024

Longer Lease Extensions

The Leasehold Reform Bill extends the 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.

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 Reform Bill removes the 'marriage value' from the cost calculation for leasehold enfranchisement. This change will make it cheaper for leaseholders with short leases (under 80 years) to extend their leases or buy their freehold, addressing 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 Leasehold Reform Bill introduces more transparency regarding service charges, including standardized forms for service charge accounts and annual reports. It also bans excessive buildings insurance commissions for freeholders and managing agents. These measures will help leaseholders 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 rent remains a contentious issue. The Leasehold Reform Bill does not cap or abolish ground rents for existing leases. Ground rents for new leases are capped at a nominal amount, but existing leaseholders will not see changes in their ground rents under the current legislation.

This has caused concern among freeholders, who depend on ground rents for income, and among larger investors, for whom ground rents are a critical part of their financial agreements. A proposed compromise is a phased reduction of ground rents to a peppercorn rate over twenty years. However, this has raised concerns about potential early repayment demands from lenders, which could lead to financial instability for some freeholders.

These changes will give leaseholders less restrictive and burdensome measures and will ultimately save them thousands. The government aims to make buying and selling leasehold property much easier by redressing areas of law that cause concern for leasehold owners such as extending the lease and service charges.

Implementation Timeline for Leasehold Reforms

While the Leasehold Reform Bill has been passed, many of its provisions require further implementation through secondary legislation. The full effects of the Leasehold Reform Bill will likely be phased in over the next few years, with complete implementation expected between 2025 and 2026.

Will they abolish leaseholds completely?

It is unlikely that leasehold will be abolished altogether as this has already been proposed but the government went back on their decision. New leasehold reforms have been proposed which will hopefully resolve all the common problems that people have with leasehold property. 

Seeking Advice on Leasehold Reforms

For further advice on how these reforms might affect your leasehold, it is advisable to consult with a leasehold specialist. This will ensure you receive tailored guidance based on your specific circumstances.

These reforms represent a substantial shift in the leasehold landscape, aiming to provide fairer, more transparent, and more secure housing arrangements for leaseholders across the country.

How Can GloverPriest Help?

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.

FAQs

What happens when a leasehold expires? 

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.

How to extend leasehold? 

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.

How much does it cost to buy the freehold of a leasehold house? 

The cost varies depending on factors like the property's value, the remaining lease term, and ground rent. You’ll need to cover the purchase price plus fees for valuation and legal services.

What is a deed of variation on a leasehold property? 

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.

How does leasehold work? 

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.