Leasehold and Freehold Reform Bill FAQs

The Leasehold and Freehold Reform Bill was announced on 7 November 2023 and is currently making its way through parliament, with report stage at the House of Lords currently scheduled for 5 June. The Bill, if enacted, will introduce a number of reforms to the leasehold system. Although we are unable to say for certain which of the following (if any) will make it into the legislation if passed, among the more significant proposed reforms are: Residential lease extensions Leaseholders will not have to wait two years after becoming the registered proprietor of a flat to extend their lease. To abolish “marriage value”, which is an additional amount payable by the leaseholder once the lease has less than 80 years remaining. Adding 990 years to a lease as opposed to 90 years. To impose further controls as to how much of their legal and other costs a landlord can recover from the tenant for dealing with the lease extension claim. Enfranchisement (purchasing the freehold from your landlord) Increasing the limit of a building’s internal floorspace used for non-residential purposes from 25% to 50%. It is proposed that leaseholders will be able to voluntarily agree to a restriction on future development of their property to avoid paying “development value”, which is a factor considered when assessing freehold purchases. The value of potential development can be costly to leaseholders and this proposal could make the process easier and more affordable. FAQs from leaseholders Should I wait to get my lease extended or should I extend my lease now? This seems to be the most prominent and pressing question we receive from leaseholders. The answer would generally depend on your lease and situation. If you intend to keep your property and your lease has more than 90 years remaining, it may be worth holding off to see whether the legislation brings any amendments to the statutory lease extension process that benefit you. If your lease has less than 90 years left and you are looking to remortgage or sell, we would recommend you proceed to extend your lease now. These properties are more difficult to sell and obtain a mortgage over. If your lease is close to 80 years or less, then (under the current legislation) every year the lease goes further below 80 years, this will increase the cost due to the “marriage value” described above, and therefore careful thought must be given to extending the lease now rather than waiting to see what the legislation will bring. Leaseholders in this position would possibly benefit the most from the new legislation if, when passed, it entirely abolishes marriage value. However, we do not yet know whether marriage value will be altered to allow some element of it to remain. This is a big decision and one that needs thought and advice from a specialist solicitor. Ultimately, the decision will be down to the leaseholder regarding their specific situation and views on the likelihood of the government delivering the legislation, with no major amends. Should I buy a short lease property with the reforms coming through? It is important to note the difference between the proposed Bill and it becoming law. Until the Bill receives royal assent, the existing lease extension process will remain in force, where you will need to have been a qualifying tenant of the property for two years to be eligible to exercise your right to a lease extension under the statutory process. If you are looking to purchase a short lease property and you wish to extend the lease right away, you should ensure you speak with a legal adviser about a deed, to assign the benefit of a lease extension notice. A specialist surveyor will be able to advise on the value of the short lease property and potential lease extension. FAQs from freeholders/landlords What will I need to pay for? Under the current legislation, the leaseholders are responsible for a landlord’s reasonable legal and valuation fees, save for if the matter goes to the First-tier Tribunal where, usually, each party bears its own costs. A proposal of the Bill is that the landlord becomes responsible for their own legal and valuation fees. Should we offer extensions now while we can still get marriage value? The previous question leads nicely into this one, whereby a landlord is considering approaching the leaseholders to make them aware of the lease extension process. This may be a beneficial approach for landlords as, currently, marriage value and the costs a landlord can recover are proposed to be abolished. In saying this, there are no assurances that marriage value or the costs element will be altered, or they may come back in some other way. They are, however, currently accounted for. Are there any changes to ground rent? As opposed to abolishing ground rent altogether, a current possible approach is a cap at a maximum amount of £250 a year that will continue to be payable while being phased out over a 20-year period. While most legislation that is passed is not retrospective in effect, there is talk of this Bill being retrospective for existing ground rents (in its current form). Rather than removing all ground rents from existing leases, it is likely to introduce the cap mentioned above. One question that arises from both landlords and leaseholders What happens if I wait and the Bill gets amended? If you do make the decision to wait and the Bill is further amended, to your advantage or disadvantage, you will need to take the Bill as it comes. At the time of writing, it is difficult to say when and in what form these proposals will come into force. However, there have been several speculations. The proposed Bill has sparked controversy, and will no doubt continue to face challenges, both prior to being passed and in respect of how it will take effect once enacted, should it get to that stage. The intention was to make the process fairer for leaseholders, by taking something away from the landlords, and that is a dilemma the government currently faces. We anticipate that a version of the Bill will be passed and brought into force in 2025; however, there may be numerous changes to its current format, and it could take effect sooner rather than later. As it stands there is nothing set in stone, while the years remaining on leases continue to tick down. Although an adviser won’t be able to provide you with a definitive answer until the legislation is passed, it is certainly worth having a discussion to assist you in assessing what options you have going forward. Vikki Herbert is a partner and head of real estate and Jimmy Griffin is a conveyancing executive at Thackray Williams Image © Anne Nygård/Unsplash