27th June 2024

The latest news about the Leasehold Reform Bill

When it comes to purchasing property, one of the key things that buyers need to look out for is whether their property is considered ‘freehold’ or ‘leasehold’. If you find yourself unfamiliar with these terms or need a refresher on what exactly they mean, you can read our dedicated blog. 

However, even if you are already aware of the implications and responsibilities that come with leasehold properties, or if you currently own or are planning to own a leasehold property, we recommend that you carry on reading as we discuss the new leasehold reforms and how they may affect property owners

When does the Leasehold Reform come into effect?

The first stages of the Leasehold Reform are effective as of July 24th 2024. The following stages will be rolled out by the government over the coming years. Therefore, it is important to keep up to date with the latest developments so that you understand which laws have changed, and which ones remain until all phases of the reform have been implemented.

What are the new Leasehold Reforms?

The act will aim to introduce new rights for those with leasehold properties as well as strengthen consumer protection. The reform has been designed to make the purchase of leasehold properties more attractive, by somewhat modernising an outdated feudal system. This means that there is lots of new legislation to wrap your head around, and to help you understand these new changes, we’ve broken them down into simplified terms and categories. 

Lease extensions

• It will be easier for tenants to acquire their freehold: when making an enfranchisement claim, in many cases tenants will no longer have to pay their freeholder’s costs.
• The sale of new leasehold houses will be banned: except for in exceptional circumstances, every new build home in England and Wales will be sold on a freehold basis.
• You will not need to own the property for two years before seeking a lease extension: this means that you can seek an extension on your lease from the point of purchase, ideal if you are interested in a property with a short lease. 
• Enfranchisement for properties with commercial parts will increase: tenants will now be able to enfranchise buildings with up to 50% commercial parts, an increase from 25%.
• Marriage value will be abolished: marriage value refers to the potential profit of extending a lease on a property with 80 years or less. This means that for those with short leases, extensions will be cheaper as they will no longer need to split the marriage value with the freeholder.

Buildings management

• It will be easier for leaseholders to challenge poor practice from freeholders: a new redress scheme will be introduced. This will require the registration of freeholders who manage their building directly.
• There will be a maximum fee and time limit for the provision of home buying and selling information; the limits and fees will be set out in the statutory instrument.

Service charges

• There will be greater transparency over service charges: a new standardised format for demanding service charge payments will be introduced, making it clearer for tenants to understand and challenge unreasonable payments.
• There will be greater transparency regarding fees on insurance: this is because there will be a ban on commissions made on insurance by freeholders and/or managing agents. These are to be replaced with fair handling fees.

What are the next steps for leaseholders?

For those who own or are purchasing properties with short leases, these changes are likely to affect you more immediately and you will need to make decisions about extending your lease or purchasing freehold. If your lease has 80 years or less remaining, it may be worth waiting until the reform act comes into effect so that you have more favourable conditions for extension. It also should be noted that given current political turbulence, it isn’t likely that we will see many changes for the rest of 2024, and so we may not have total clarity on the effects of this reform until 2025/26. 

Therefore, due to what we currently know, the biggest question that is being asked by leaseholders is whether they should extend now or wait until more of the act has been implemented. However, there is no simple and definitive answer and you should speak to a leasehold specialist for further advice. To assist you in your decision making process, we’ve addressed some other common questions below to offer more insight. 

Could the reform make an extension more expensive?

The intent of the new leasehold reforms is not to make extension more expensive, but this could be a possibility for some. Currently, the act doesn’t indicate what rates will be used to generate the extension and freehold purchase prices as these will be set out at a later stage. If these rates are set at a lower rate than current agreements between valuers, lease extension costs will increase. This is most likely to affect those with low ground rent and those with leases that are longer than 80 years. It is impossible to know at this stage whether this will be the case, but it is a possibility to consider.

Will there be a cap on ground rents?

No, at this stage there will be no cap on ground rents. Whilst the government was in talks over introducing this, it did not make the final bill before the dissolution of parliament before the general election. As such, this means that any cap on ground rents will need to be introduced by a new government at a later date.

Does the leasehold sale ban apply to all new properties?

The ban of the sale of leasehold properties will apply only to new houses in England and Wales. This means that new flats can still be sold under leasehold tenure, and under exceptional circumstances some new houses may also still be sold under leasehold tenure outside of these countries. As such, it is important to check the details of any property that you wish to purchase and do not fall into the trap of assuming because a house is new, it will be freehold. On that note, if you currently own a leasehold property with less than 80 years remaining and you wish to re-mortgage or move, it might be best to extend your leasehold if this is going to be an issue. This is particularly important as sales on leasehold homes have dwindled since this ban was announced.

What can you do if you’re in the process of extending a lease?

Unfortunately, you have only two options in that you may withdraw or carry on as normal if you have taken the formal route. Some informal negotiations may mean that freeholders would be willing to put a temporary pause on the process until the act comes into effect, but this is fully at their discretion. 

If you’re buying a leasehold property, you may be able to negotiate a new price due to the new leasehold reform. If you’re buying a new build, check that the lease is 990 years and the ground rent is set to zero – especially if you are buying a new build flat.

Find leasehold properties with SDL Property Auctions

With these new leasehold regulations coming into place, the stigma around owning leasehold properties should start to decline as the prospect of ownership becomes more appealing and in favour of the tenants. At SDL Property Auctions, we are fully aware of the potential of leasehold properties and how they can make a positive impact on your property portfolio. If you’d like to browse through leasehold homes and buildings, use our advanced search filter to select your desired tenure option. Alternatively, you can contact us with any queries about buying and selling leasehold properties and we’ll do our best to assist.