The Leasehold and Freehold Reform Act 2024 (“the 2024 Act”) addresses long-standing issues associated with leasehold properties and aims to empower leaseholders, offering them greater security, control, and financial fairness. Here, we delve into the key aspects of the 2024 Act, its implications, and what it means for property owners and developers.
Background
Leaseholders own nothing more than a piece of paper, entitling them to occupy a part of a property, on land owned by someone else, for a finite period of time.
The “Leasehold Reform” movement originated with leaseholders of houses who make up approximately 5% of the total housing market. Campaigners and activists have been relentless in their fight for reform and ultimately the abolition of leasehold, leaving the government facing a real predicament; how to appease the leaseholders without disenfranchising the very people upon whom the government is relying to alleviate pressure on the housing market by introducing new stock.
The 2024 Act is a response to campaigns against escalating ground rents, forfeiture for breach of covenants and more serious issues, including being able to have a pet in a flat and making the system more equitable.
Key Provisions of the 2024 Act
1. Abolition of Ground Rents
The 2024 Act abolishes ground rents for new residential leaseholds. This measure is designed to prevent freeholders from charging excessive ground rents, which have been a source of financial strain for leaseholders.
2.Lease Extension Rights
Leaseholders now have the right to extend their leases by up to 990 years at zero ground rent. This is a substantial increase from the previous 90-year extension for flats and 50 years for houses, providing long-term security for leaseholders but they still will own nothing more than a piece of paper!
3. Simplified Enfranchisement Process
The process for leaseholders to buy the freehold of their property, known as enfranchisement, has been simplified and made more affordable. The 2024 Act introduces a new calculation model for the cost of enfranchisement, reducing legal complexities and financial burdens.
4. Regulation of Service Charges
The 2024 Act introduces stricter regulations on service charges, ensuring that they are transparent and reasonable. Leaseholders will have greater power to challenge unfair charges.
5. Redress and Compensation
A new redress system has been established to handle disputes between leaseholders and freeholders. The system aims to provide quicker, fairer resolutions and includes provisions for compensation where leaseholders have been unfairly treated. This is in addition to the redress scheme for managing agents, which offers quick and fair resolutions, including compensation where leaseholders’ claims against managing agents are upheld.
Consequences
For leaseholders, the 2024 Act is overwhelmingly positive, offering increased security, financial predictability, and control over their homes. The elimination of ground rents and the easier enfranchisement process will particularly benefit those in new developments and existing leaseholders looking to secure their homes for future generations.
For freeholders, a reduction in income from ground rents is inevitable and they will need to adapt to new regulations governing service charges, while developers will need to consider the financial implications of the abolition of ground rents for new leases, potentially leading to adjustments in pricing models and business strategies.
In the property market, the 2024 Act is likely to lead to greater stability and fairness, making leasehold properties more attractive to buyers. The long-term extension of leases at zero ground rent could also enhance property values and marketability.
The 2024 Act is seen as a crucial step toward modernising our property law. However, its success will depend on effective implementation and enforcement. The government has committed to reviewing the impact of the 2024 Act and making necessary adjustments to ensure it meets its objectives.
Next time… Key Aspects not covered by the 2024 Act
Shmuli Simon is a Partner in W Legal, with a successful Property Litigation practice, founded on more than 12 years’ experience working in-house for managing agents and building his own private practice. In his commercial practice, Shmuli represents freeholders and developers, Residents’ Management Companies, Right to Management companies and Tribunal-appointed managers. In his personal practice, Shmuli advises leaseholders on all aspects of block management and leasehold law and he provides free legal support to firms of managing agents (subject to terms and conditions).
If you have any queries or would like to meet for an introductory conversation around these topics, please contact shmuli.simon@wlegal.co.uk to discuss your freehold/leasehold issues.
