Dona Awano, a residential property solicitor specialising in leasehold matters, looks at the likely impact of the Leasehold and Freehold Reform Act 2024 on investors, landlords, and leaseholders.
What is the Leasehold and Freehold Reform Act 2024 (L&FRA)?
Most leaseholders of flats already have a legal right to extend their leases or to club together to buy the freehold of their blocks.
Legislation sets out how the prices and other terms of an extension or purchase are decided by the tribunal if the landlord and leaseholder cannot agree. Within limits, the landlord and leasehold can also agree whatever terms they choose without going to the tribunal.
The L&FRA is a new Act passed by Parliament on 24 May 2024, which will make it cheaper and easier for leaseholders to use these rights, but most of it is not yet in force.
When will the L&FRA be in force?
In the King’s Speech on 17 July, the government promised to “act quickly to provide homeowners with greater rights, powers and protections over their homes”. However, parts of the L&FRA are not workable without detailed regulations that are not yet drafted, and some landlords are challenging the L&FRA in court. We can expect delays of many months.
How will the Leasehold and Freehold Reform Act change lease extensions and freehold purchases?
- Term – A lease extension will add 990 years to the lease, instead of 90.
- 2-year rule – If you buy a flat you can apply straight away for a lease extension, without having to own the flat for 2 years.
- Price – Ground rent stops when a lease is extended. The extension price includes the value of future rent the landlord would have received. This will be calculated in a new way that may reduce the price.
- Marriage Value – If a lease has under 80 years to run, the extension price currently includes an extra item called “marriage value” which can almost double the price. This will no longer be paid.
- Costs – Leaseholders will pay less towards their landlords’ professional costs. The process will be simpler, with some disputes decided by the tribunal instead of the court.
What about mixed-use buildings like flats over shops?
Leaseholders cannot now buy freeholds or claim the right to manage if more than 25% of the building is commercial. That will change to 50%, bringing these rights to more leaseholders.
How does this affect freeholders and investors?
Abolishing marriage value will hit freeholders hard. Freeholders and investors will need legal and valuation advice.
Issues include whether to invest in freeholds at all, and whether existing investors should just wait or actively offer lease extensions to leaseholders before the L&FRA changes take effect.
How does this affect leaseholders and prospective purchasers?
If you’re thinking of extending your lease, discuss this with your solicitor now, and consider getting a valuation.
A lease extension can take over a year if the tribunal has to be involved. If you need an extension urgently it may be better to start the process now than wait for the L&FRA, especially if your lease has not much over 80 years to run.
And beware of landlords offering quick cheap deals – there may be a catch!
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About Dona Awano
Dona Awano is a solicitor at Amphlett Lissimore, specialising in the niche area of leasehold property law. Based in our Crystal Palace office, Dona’s work includes collective enfranchisement, lease extensions, right of first refusal, freehold acquisition of houses, right to manage, licence for alterations, and service charge and management disputes.