Leasehold Reform Act 2024 explained: what you need to know about new lease rules. The Leasehold and Freehold Reform Act 2024 (the Act) received Royal Assent on 24th May 2024. Despite this, only a small number of provisions are due to come into force, with the remainder requiring further legislation to become effective. The new Labour Government is only just setting out their plans and must grapple with a number of issues, so it is difficult to predict a time frame of when the key provisions of the Act will come into force. Given the upcoming (and beneficial) changes, a lot of leaseholders are asking if they should they proceed with extending their lease now? Our response, is that it would be an understatement to say that the Act is game-changing for leaseholders. Both the lease extension and the collective enfranchisement processes are due to become considerably easier for the leaseholders. The Act includes the removal of the requirement of owning the lease for the previous 2 years and the increase of the non-residential limit of mixed-use buildings from 25% to 50%, for the purposes of enfranchisement claims. In addition, the Act removes the landlord’s automatic entitlement to their legal costs of the lease extension or enfranchisement, which will make the process far more attractive for the leaseholders. The security of the lease term increasing from 90 years to 990 years, will remove a significant disadvantage of the leasehold tenure. Another important change is abolishing the so-called ‘marriage value’, which is effectively an increase in the property’s value following an extension of the lease. Landlords are currently able to claim a marriage value premium once the term left on the lease has fallen below 80 years. The Act was rushed through by the previous Government prior to the 4th July General Election, but will likely require a significant amount of further secondary legislation before it comes into force. In the meantime, this leaves the leaseholders in a state of limbo, begging the following question… Should the leaseholders proceed with their lease extension now to have the certainly of a longer lease, but miss out on the longer term and pay higher fees? Or wait for the legislation to come into force and take advantage of the new provisions? Leaseholders will be pleased to learn that the Act was featured in the 17th July’s King’s Speech as one of the priorities for the Labour Government. This would suggest the Government is prepared to implement the provisions of the Act in the next parliamentary session. In addition, the key features of the new draft Leasehold and Common Reform Bill were set out to include, among others: Regulation of ground rents; Enacting the remaining Law Commission recommendations in respect of enfranchisement and Right to Manage; and Banning forfeiture of residential leases. That said, the King’s Speech featured around 40 new bills (the highest number mentioned in a King’s Speech since 2005), so the time frame for when the leaseholders will actually be able to extend their lease under the new legislation remains unclear. What to do about extending your lease If your current lease exceeds 82 years, you may wish to wait for the Act to come into force but keep a close eye on the time. The marriage value premium is activated once the term falls under 80 years so, strategically, you are not taking a substantial risk by waiting. However, if the term of your lease is getting close to under 82 years, you may consider extending your lease without waiting for the changes, to avoid the marriage value kicking in if there is a delay in implementation of the Act. If your lease is already under 80 years, waiting for the legislation to come into force may end up being cheaper overall. However, it is important to consider the negative effect the short lease will have on the value of your property. If you have already began the process of extending your lease (for example, if the section 42 notice has been served on the landlord and there are ongoing negotiations between the parties’ respective valuers), it is best to continue the process to completion. This is because both the tenant and the landlord would have likely incurred legal costs and other professional costs (such as surveyor fees), which would be payable even if you chose to withdraw from the process. How can Morr & Co help? If you require assistance and advice regarding the new lease rules or have any questions about this article, please call our Dispute Resolution team on 01737 854500 or email info@morrlaw.com and a member of our expert team will get back to you. Disclaimer Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position. Authored by Irina Apekisheva Associate Solicitor Message Tags Insights On this page Contact our team today Contact Us
