Following manifesto promises and many years of consultation on leasehold reform, the Government has passed the Leasehold and Freehold Reform Act 2024 (the Act) as one of several Bills pushed through on Friday before Parliament shut down in advance of the election.

What does the new law mean for the housing sector?

While the Act has received Royal Assent, it requires a raft of secondary legislation to clarify the detail of certain changes and to bring them into effect. The timescale for such legislation is currently unclear and it is therefore business as usual for now.

Once the Act does come into effect, it will bring about some significant changes designed for the benefit leaseholders. These include:

• increasing the standard lease extension term to 990 years
• new valuation methods for premiums to be paid by leaseholders to make it cheaper to extend their lease or enfranchise, including the abolition of marriage value (payable when a remaining lease term is below 80 years), with the rates to be included in the calculation set by the Government
• removing the presumption that leaseholders pay their landlord’s costs in relation to the grant of a statutory lease extension or exercise of collective enfranchisement
• removing the requirement for leaseholders to have owned their property for two years before they can extend their lease or buy their freehold
• making the process of buying or selling a leasehold property quicker and easier by setting maximum time and fees
• prohibition on the sale of new leasehold houses
• service charges to be demanded in a standard form to allow greater scrutiny and challenge
• removing barriers for leaseholders to challenge unreasonable service charges at Tribunal and extending access to redress schemes
• increasing the non-residential threshold from 25% to 50% to allow more leaseholders to exercise the right to manage or collectively enfranchise
• making it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent of their choice.

Some commentators are suggesting that the Act has not gone far enough and does not reflect the raft of Law Commission recommendations resulting from extensive consultation. For example, it has excluded the Government’s key proposed reform of capping ground rent in existing leases, a controversial proposal which was the subject of much lobbying by freeholders. However, it likely be the first stepping stone in the reform process as it is expected that any new Government will want to continue the reform agenda.

What is clear is that the income that our housing provider clients receive from enfranchisement, and particularly the grant of statutory lease extensions, will reduce, both because it is likely that premiums received will be lower and it is unlikely that you will be able to recover your legal costs from leaseholders.

Jurisdiction of the Tribunal

Jurisdiction of the First-Tier Tribunal (Property Chamber) will be extended to determine eligibility for lease extensions and the purchase of freeholds, in addition to matters such as the price payable and what provisions should be contained in the new lease or conveyance.

The inevitable increase in work for the Tribunal will not end there. Currently, the Tribunal has jurisdiction in respect of leasehold service charges, but not to determine whether freehold estate charges are payable. The Act brings freehold estate charges under the jurisdiction of the Tribunal, so that it will deal with applications as to whether such charges are payable, by who, the amount payable and the date by which it is payable.

Leaseholders will also be given more transparency over their service charges as demands will be in a standardised format containing specified information. The specified form will be introduced at a later date by regulations. Arguably, any slip ups by landlords or managing agents will be more apparent to leaseholders, so it could increase the number of challenges in the Tribunal. 

Siobhan McGrath, President of the First-Tier Tribunal, has said the Tribunal is trying to be kept updated on commencement of provisions in the Act, so that it can ensure resources are in place, by increasing the number of judges, valuers and lay members to get the right number of staff in the right places.

How Capsticks can help

Capsticks aims to be the firm of choice for our housing and local government clients, offering a full service from leasehold and asset management advice to banking and finance, governance and planning. We are experts on all aspects of compliance with these new legal requirements and can advise on the broader changing landscape of the housing sector.

We expect a large influx of extension applications from those who have been waiting for the legislation to come into effect and our team at Capsticks will be ready to assist you with those when the time comes.

It will be even more important to ensure that the costs incurred are kept to a minimum, in the way that we already do at present by using a dedicated team with standard form documents and efficient processes.

Our experts will continue monitoring the reforms as the changes are introduced, but in the meantime if you would like to discuss any of the above please contact our leasehold experts Abi Condry, Steven Wood, Emily Jordan and Alexandra Aristidou.