Posted on 7th January, 2025
Navigating the Future of Leasehold: What Leaseholders need to know.
The following is meant as a simple brief analysis of the Housing Minister Matthew Pennycook’s speech on 21st November 2024 concerning Leasehold and Commonhold Reform. This is for information only and is not to provide any advice on any particular case. You are advised to read the full speech which can be found here.
As surveyors specialising in lease extensions and freehold purchase, we understand the complexities and frustrations that many leaseholders face. We appreciate that many leaseholders have been waiting for significant reform since 2017 when the then Conservative Government first ran a consultation to tackle unfair practices in the leasehold market.
Background
Progress was made in 2023 when the Leasehold and Freehold Reform Bill was published and subsequently went through the “wash up” period in May 2024 when the General Election was called, and the Bill gained Royal Assent and became the Leasehold and Freehold Reform Act 2024 (hereafter referred to as the 2024 Act). Since then, we have all been waiting for news of when the provisions of the Act would come in. Just to recap, these were:-
- Marriage value to be abolished and no longer payable for lease extensions where the existing leases have less than 80 years unexpired.
- The current two-year ownership qualification rule to extend leases to be abolished.
- Lease extensions to be 990 years rather than the current 90 years.
- Landlords’ recoverable valuation and legal fees to be abolished except in cases where the premiums are low.
- The Government to prescribe the capitalisation and deferment rates used in the valuation calculations and to review these every five to ten years.
- Existing ground rents entered into the lease extension premium calculations to be capped at 0.1% of the value of the property. This will reduce the level of premiums paid for leases where the existing ground rents are high.
- Banning leasehold houses.
- Greater service charge transparency and rights.
Matthew Pennycook, Minister of State for Housing and Planning published a written statement on 21 November 2024 on Leasehold and Commonhold Reform. Here is what you need to know about the upcoming changes, and how they may impact you.
The Quick Wins from the 2024 Act
The two year qualification rule is set to be removed in January 2025. This is good news for leaseholders who have just purchased a property and want to extend the lease.
The Government will bring in Right to Manage provisions contained in the 2024 Act in Spring 2025 meaning more leaseholders in mixed use buildings can take over the management of their building from their freeholder and leaseholders, in most cases, will no longer have to pay their freeholder fees.
Still a way to go!
Consultation is set to take place in Summer 2025 on the elements on the valuation rates used to calculating premiums. These will determine how much you will pay for your lease extension or to buy your freehold. Once the consultation concludes the Government will need to approve these rates through Secondary Legislation.
Also, in 2025 the Government has committed to consulting on banning commissions on building insurance and reforming service charges and legal costs.
The Government have stated that there are some serious flaws in the Act that will require remediation through Primary Legislation. One of these flaws is an omission in the Act that would deny Shard Ownership leaseholders the right to extend their leases by 990 years, given that most providers do not have sufficiently long leases to grant a 990 year lease extension.
Switching on the 2024 Act will take time
Matthew Pennycook has stated that the Government “must balance speed with care”. There are no further definitive timelines provided. It is probably safe to say that the consultations and the Primary and Secondary Legislation fixes will take some time. If consultation on the valuation rates are not to take place until Summer 2025, then it is presumed that the provisions of the Leasehold and Freehold Reform Act will not be switched on until 2026 at the earliest. Consultations take time – there has still not been a response from the government regarding ground rents and this closed on the 17th of January 2024.
More future legislation planned
Matthew Pennycook also announced the future introduction of a Draft Leasehold and Commonhold Reform Bill. This bill aims to make further changes to leasehold including dealing with unregulated and unaffordable ground rents, the poor quality of services provided by some managing agents and reinvigorating commonhold and making it the default tenure for new properties. Commonhold allows homeowners to own their flats outright, with a share in the ownership of the building and land, eliminating many of the issues associated with leasehold. This is a complicated issue, and it will likely take a number of years to bring this forward. The Government have stated that this Bill will be drafted in the second half of 2025 with an inferred implementation date of circa 2029.
Stay informed and get involved!
The government will be holding various consultations to refine and implement these reforms. As a leaseholder, your input is crucial. Participating in these consultations can help ensure that the changes address the real issues you face as a leaseholder.
These reforms will bring long-awaited relief from restrictive and often unfair leasehold practices. However, the delay in implementation highlights the importance of staying informed and being proactive.
If you are a leaseholder considering extending your lease or purchasing your the freehold of your leasehold house, now is the time to seek advice.
Please do make contact with one of our specialist valuers to discuss your individual circumstances. We cannot advise you what to do, but we can certainly talk to you about the information we do have, so that you can make an informed choice.
Please telephone 01903 872211.
Please note that this information was prepared to generally raise awareness of the proposed reforms. You must always seek your own legal and valuation advice tailored to your own individual circumstances.