Leasehold and Freehold Reform Act 2024

Major reforms have been ushered through thanks to the Leasehold and Freehold Reform Act 2024 (the “Act”) which became law on 24 May.    

The Act has far-reaching effects, but the following is a short introductory summary of the primary changes insofar as they affect owners of superior interests in schemes where apartments have been sold on long leases.

Summary of intended changes

• Existing leaseholders of houses and flats will find it easier to extend their lease or buy the freehold interest.
• The legislation pursuant to the Building Safety Act 2022 is advanced, including obligations for freeholders and developers to fund building remediation work.
• Transparency over service charge information is increased and will be provided in a standardised format to make it easier to review and challenge.
• Leaseholders in buildings with up to 50% non-residential floorspace are allowed to buy their freehold or take over its management.  The previous threshold was 25%, so this will increase the number of apartment owners who may be able to make these applications.
• Commissions for managing agents, landlords and freeholders are replaced by more transparent administration fees.
• Freeholders have increased obligations to provide information to a leaseholder more quickly and easily.
• The requirement to have owned the long leasehold interest for a minimum of two years before an application can be made to extend that lease has now been abolished.
• The presumption that leaseholders will need to pay their freeholders’ legal costs in certain situations is abolished.
• The standard lease extension term will increase from 90 to 990 years for houses and flats, with ground rent reduced to £0.

Cap on ground rents

One controversial  change was to introduce a cap on ground rent.  Ground rent is the charge payable by a tenant under a lease to the owner of a superior interest in their property.  Ground rents became stigmatised after it became commonplace for leases to include provisions which meant that an initial low ground rent could quickly became a financial burden because rent increases were prescribed too frequently.  The consequence was that ground rents were being levied at rates that were far above inflation.  The ability to charge a ground rent in new leases was abolished in June 2022.  The proposal to abolish ground rents or to cap them in existing leases was omitted from the Act.

What next?

Although the abolition or capping of ground rents in existing leases has not yet become law, it is likely that it will be reintroduced to Parliament by the next Government.  However, any changes will be delayed as the new legislation including these provisions will need to start its progress through Parliament from scratch, a process that may take 12 months or more.

Get in touch

If you are the owner of residential investment property subject to long leases, we can help you to understand the impact of the Act and the future proposed changes to ground rent and advise on strategies to manage its impact.  Please contact Beth Margetson, Phil Hunt or Jack Cook at mfg Solicitors.