Specialist lease extension solicitor, Callie Tuplin, and trainee solicitor, Bethany Lane, take a look at the latest news on leasehold reform for 2024.
The Leasehold and Freehold Reform Bill was introduced in the Kings Speech on 27th November 2023. Since then, the Bill has had 124 amendments including 24 new clauses and 1 new schedule and is subject to more. The Bill, on 27th March 2024, progressed through the Second Reading to the Committee Stage in the House of Lords. If everything goes smoothly, the intention is for the reforms to come into force before the end of this parliamentary session.
Whilst there was a long debate in the House of Lords, the overall reaction to the Bill was positive. Some of the reforms were widely accepted including:
However, the House of Lords identified many areas that require further change, some of which we take a look at below.
To calculate the premium at present, it requires a surveyor to undertake a valuation of the property and lease looking at the reduction in the value of the Freeholder’s interest in the flat, marriage value, compensation for any losses, the ground rent income they will lose and the loss the Freeholder suffers due to the extra 90 years they will have to wait for the ownership of the flat. It is not a set calculation and is subjective. The Bill proposes a set calculator so that the premium reflects the freeholder’s legitimate property interest.
One of the discussions in the House of Lords was how this calculator would be implemented and the rates that will be used. The plan currently is for the Secretary of State to set the rates and calculator after the Bill has been passed. Until the rates are set in secondary legislation, we cannot ascertain whether this will have a positive or negative for leaseholders.
The changes to ground rents are twofold - for the purpose of the set calculator, ground rent will be capped at 0.1% of the freehold value and ground rents are to remain a peppercorn.
This reform will inherently benefit the leaseholder, saving them from paying onerous ground rents which consequently increases the premium they pay when obtaining a lease extension. The concern is that the issues with ground rent will have a substantial effect on the freeholder’s income and even may infringe on their human rights. The government considers the Bill to be ‘justified and proportionate’.
Further amendments to ground rent will be outlined shortly.
For leaseholders with short leases (of less than 80 years), one of the most impactful reforms would be the removal of marriage value. Marriage value is an additional fee payable to the freeholder, as a part of the premium, which reflects the additional market value of a longer lease.
This reform will allow leaseholders with shorter leases to avoid paying inflated premium’s which increase annually when their lease drops below 80 years until they complete a lease extension.
Transparency relates to the service charges and management of the freehold buildings. It should prevent inflated service charge being demanded which bring profit to the Freeholder. The intention of ensuring that leaseholders are aware of any unfair costs and provide them a system to act against it.
Increasing transparency goes hand in hand with regulating property agents. If the Bill is passed, property agents will have to ensure that the costs are proportionate as the leaseholders are entitled to see their charges and must be a member of a redress scheme. The redress scheme and increased transparency should give leaseholders the ability to identify and act against management failures.
It’s universally recognised that the leasehold system in England and Wales needs reform, however, even if the Bill obtains Royal Assent, the current proposals only bring four aspects into force after two months. The four aspects being issues on rent charges and three amendments to the Building Safety Act 2022. The remaining 95% of the Bill will come into force at ‘a date to be determined’. So, whilst the Bill promises greater transparency and more fairness for leaseholders, we cannot be certain of the overall outcome at this stage.
If you are considering a lease extension, or require advice on extending a lease, our specialist lease extension lawyers are able to help.
A Mackman Group collaboration - market research by Mackman Research | website design by Mackman
