The Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 (“the Act”) introduces several significant changes affecting enfranchisement, making it easier and more cost-effective for residential leaseholders to extend their leases or purchase the freehold of their properties, as well as provisions relating to building safety. Several of the key impacts are set out below, including provisions that take effect from 24 July 2024.
Residential Lease Extensions and Enfranchisement
Lease Extensions:
Leaseholders of both houses and flats can now extend their leases up to 990 years. This is a substantial increase from the previous standard lease extension term of 90 years.
Ground rent for these extended leases is reduced to a nominal (peppercorn) value, effectively eliminating ongoing ground rent payments.
2. Removal of ‘Marriage Value’:
The Act abolishes the marriage value, which is an additional payment that leaseholders had to make when extending their leases if the lease had less than 80 years remaining. This change significantly reduces the cost of lease extensions.
3. Eligibility and Process:
The requirement for leaseholders to have owned their property for two years before being eligible to extend their lease or buy the freehold has been removed. This makes it easier and quicker for new leaseholders to initiate the enfranchisement process.
The Act simplifies the enfranchisement process, reducing the administrative burden and legal complexities previously associated with extending leases or purchasing freeholds.
4. Valuation and Costs:
The Act introduces a more transparent and standardised valuation process for calculating the costs of enfranchisement. This aims to provide leaseholders with more predictable and fairer costs when extending leases or buying freeholds.
A prescribed formula for valuation will be established through secondary legislation, which is expected to clarify and potentially lower the costs involved.
5. Shared Ownership:
Shared ownership leaseholders are also granted the right to extend their leases. However, they can only acquire the freehold through the final staircasing process, where they purchase 100% of the property.
Overall, these reforms aim to provide greater clarity, reduce costs and simplify the enfranchisement process, making it more accessible for leaseholders to gain long-term security in their homes.
Section 5 notices under the Landlord and Tenant Act 1987
Enhanced Rights and Protections
Transparency and Information:
The Act requires landlords to provide more detailed and standardised information when issuing a Section 5 notice. This includes clear breakdowns of costs and comprehensive details about the sale process, making it easier for leaseholders to understand and exercise their rights to buy the freehold.
2. Extended Timeframes:
The timeframes for leaseholders to respond to a Section 5 notice have been extended, providing them with more time to organise and respond collectively. This aims to ensure that leaseholders are not rushed and can make informed decisions.
3. Fairer Valuation Methods:
The Act introduces standardised valuation methods to ensure the price offered for the freehold is fair and transparent. This is designed to prevent landlords from inflating prices and to make the process more equitable for leaseholders.
4. Reduced Costs for Leaseholders:
The liability for landlords’ costs associated with the sale of the freehold has been limited. Each party will generally bear their own costs, reducing the financial burden on leaseholders and encouraging a more straightforward enfranchisement process.
Key Procedural Changes
Notice Content and Format:
Section 5 notices must now follow a prescribed format and contain specific information as dictated by secondary legislation. This includes detailed terms of sale and any conditions, ensuring that leaseholders receive consistent and complete information.
2. Dispute Resolution:
New mechanisms for resolving disputes relating to Section 5 notices have been introduced. Leaseholders can now challenge the terms of the notice or the valuation through a more streamlined legal process, which may involve tribunals rather than prolonged court cases.
3. Collective Enfranchisement Support:
The Act provides additional support for collective enfranchisement, where leaseholders band together to buy the freehold. This includes easier access to funding options and advisory services to help leaseholders navigate the process.
Overall, the Act aims to make the process of responding to a Section 5 notice more transparent, fair and accessible for leaseholders. By standardising procedures, extending response times and reducing costs, the Act seeks to empower leaseholders to take control of their properties and exercise their rights more effectively.
Building Safety
From 24 July 2024, the Act aims to streamline cost recovery for building safety defects, as well as enhance information sharing and building management in insolvency cases, through the following amendments to the Building Safety Act 2022 (”BSA”):
as an exception to leaseholder protection from costs associated with such defects, resident management companies and right to manage companies can now recover expenses incurred in applying for Remediation Contribution Orders (“RCO”) which require landlords to make payments towards the costs of remedying safety defects in buildings of at least eleven metres or five storeys high, as service charges, meaning they can now more easily fund RCO applications;
section 125 of BSA, which previously allowed insolvency practitioners to apply to recover building safety costs, has been repealed, ensuring sums recovered go towards remediation rather than to creditors;
section 125A of BSA, which now requires insolvency practitioners appointed in relation to a person accountable for the repair of a relevant building to notify the relevant authorities and work together to ensure appropriate management of the building has been added;
clarification of the relevant steps for defect remediation to focus on safety and harm reduction; and
the First-tier Tribunal now has authority to request expert reports from landlords.
Legislative Timetable
The Act received Royal Assent on 24 May 2024 but most of its provisions will come into effect later, likely in 2025 or 2026, as secondary legislation is necessary to implement the majority of its changes. Only a few minor elements, particularly relating to building safety and estate rent charge enforcement, will come into effect on 24 July 2024.
Disclaimer
This note is intended to be a summary of the legislation as of 24 July 2024. It is not intended as legal advice, which will depend on individual circumstances, and we cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information. We recommend that you take legal advice if you are affected by any of the issues above.