The Leasehold and Freehold Reform Act 2024 receives Royal Assent

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Lease Law
by Sajel Patel

The Leasehold and Freehold Reform Act 2024 (“the Act”) received Royal Assent on Friday 24 May 2024 in the “wash up” and the last parliamentary session prior to the general election.

Save for a few clauses, the remainder of the Act has yet to come into force and a number of the key valuation points will require secondary legislation. What we know so far is about the new Act is:

  • The two year ownership requirement to qualify for a lease extension is removed and tenants will no longer need to wait a year after withdrawing from a claim to start again.
  • New leases will be granted for a term of an additional 990 years instead of the current additional 90 years.
  • A ban on new leasehold houses (although there are exemptions).
  • Tenants can now require a landlord to retain non-participating flats and commercial units in a collective enfranchisement claim.
  • The non-residential/commercial threshold for a building to qualify for collective enfranchisement and right to manage has increased from the current 25% limit up to 50%, allowing a larger number of mixed used buildings to qualify for collective enfranchisement and right to manage claims.
  • Landlords will pay their own legal costs except in low-value claims or in the event that the claim is withdrawn by, or is withdrawn due to the fault of, the Tenant.
  • Marriage value is “abolished” meaning the tenant no longer pays the landlord’s share of Marriage value, potentially resulting in thousands of pounds worth of saving for leases under 80 years.
  • The deferment and capitalisation rates will be prescribed by a Minster in accordance with market rates, to be reviewed every 5-10 years.
  • Ground rents may be capped at 0.1% of the freehold value of the property for the purposes of valuation in lease extension and collective enfranchisement claims.

The Act seeks to make lease extensions and collective enfranchisement easier and less expensive for tenants but there is still a great deal of uncertainty about whether the Act will achieve the desired result. In particular, whilst removing marriage value will reduce the premium to extend a lease or acquire the freehold through a collective enfranchisement claim with leases under 80 years, any potential saving could be significantly reduced or lost if the deferment rate or capitalisation rate is lowered which would in turn increase the premium and, with leases over 80 years, result in the premium end up being more expensive.

We will need to wait for the government to pass secondary legislation to prescribe deferment and capitalisation rates and set the commencement date before knowing the true impact of the Act coming into force, as the timescale for this is yet unknown. There is also the possibility that a new government may further amend the Act before it comes into force.

If you would like to discuss a proposed lease extension or collective enfranchisement claim and/or would like to obtain a quote for our fees, please do not hesitate to contact Sajel Patel on 511 9103 or Sarah Osborne on 524 3340.