Leasehold and Freehold Reform Act 2024

As of 24 May 2024, significant changes have been introduced with the Leasehold and Freehold Reform Act 2024, which has now achieved Royal Assent. This legislation aims to reform the landscape of leasehold and freehold properties, bringing about potential benefits and challenges for leaseholders and freeholders alike.

Key Questions Leaseholders Should Consider

If you are a leaseholder contemplating whether to extend your lease or purchase your freehold now or to wait, consider these three crucial questions:

• Will the reform make a lease extension cheaper for me?
• Could the reform make a lease extension more expensive?
• Can I wait for the reform to take effect?

Impact on Lease Extensions and Freehold Purchases

Cheaper Lease Extensions for Some

The Act is primarily designed to make lease extensions cheaper for those with short leases (below 80 years) and high ground rents. The key changes include:

• Abolishing Marriage Value: Previously, leaseholders with leases under 80 years had to share the hypothetical profit (marriage value) from extending their lease with the freeholder. This will no longer be the case, potentially reducing costs significantly.
• Capping Ground Rents: Ground rents in lease extension calculations will now be capped at 0.1% of the property’s value in most cases, which could lower costs for those with higher ground rents.

For instance, a leaseholder with a 79-year lease on a property worth £200,000 might see their lease extension cost drop from between £12,000 and £15,000 to a much lower amount.

Potential for Increased Costs

However, not all leaseholders will benefit. The legislation could make lease extensions more expensive for those with longer leases (over 80 years) and lower ground rents due to possible adjustments in deferment rates. A reduction in the deferment rate could increase the cost of lease extensions.

Timing and Implementation

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Although the Act has been passed, it is not yet in effect. The current guidance suggests implementation between 2025 and 2026, with some changes potentially taking until 2028. This delay means that leaseholders must carefully consider their options, as waiting might not always be advantageous.

Other Significant Changes

In addition to cost-related reforms, the Act includes several other changes:

• Longer Lease Extensions: Leaseholders can now extend their leases by 990 years, compared to the previous 90 years. While this might seem beneficial, the actual increase in property value for such long extensions is minimal but this could be more attractive to potential buyers.
• Abolishing the Two-Year Ownership Condition: Leaseholders no longer need to wait two years before extending their lease or purchasing the freehold.
• Abolishing Leasehold Houses: New houses will no longer be sold as leaseholds, reducing complications for future homeowners.

Areas Not Covered by the Reform

Several anticipated changes did not make it into the final Act:

• Capping Ground Rent on Existing Leases: Despite discussions and consultations, a cap on ground rent for existing leases was not included.
• Abolition of Leasehold: The government will not abolish leasehold in the near future, despite previous statements suggesting otherwise.
• Prevention of Forfeiture: The measure allowing freeholders to forfeit a leaseholder’s property for lease breaches remains in place.

Should You Extend Your Lease Now?

Deciding whether to extend your lease now or wait for the reforms to take effect depends on several factors:

• Lease Below 80 Years: It might be beneficial to wait, as the abolition of marriage value could reduce costs.
• Lease Above 80 Years: It’s a gamble; the reforms could make it either cheaper or more expensive.
• High Ground Rent: Waiting could be advantageous if future caps reduce your costs.
• Immediate Needs: If you need to sell or remortgage soon, it may be best to extend now rather than waiting for uncertain reforms.

Conclusion

The Leasehold and Freehold Reform Act 2024 introduces significant changes that could benefit many leaseholders, particularly those with shorter leases and higher ground rents. However, the full impact of these changes will not be clear until the government sets specific rates, and the Act is fully implemented.

Leaseholders must weigh their options carefully, considering both the potential benefits of waiting and the immediate advantages of extending now.

For personalised advice and to navigate these complex changes, leaseholders should consult with professionals like our team at Alex and Matteo Estate Agents, who can provide expert guidance tailored to individual circumstances.