How will the Leasehold and Freehold Reform Act 2024 impact you?

If you own a leasehold and wish to extend your term, how will the Leasehold and Freehold Reform Act 2024 impact you? Here, our freehold and lease extension expert explains all.

What is the Leasehold and Freehold Reform Act 2024 (LFRA)?

The idea behind the Act is to make it easier, cheaper and fairer for the leaseholder (also known as the tenant) to extend their lease or to purchase their freehold. It is also intended that this Act deals more generally with longstanding issues with the leasehold system in England and Wales.

The Leasehold and Freehold Reform Act 2024 received Royal Assent in May 2024 and shortly afterwards, a few sections of the new Act came into force. These sections dealt with rent charge arrears; s.125 of the Building Safety Act 2022 and the recovery of legal and of professional fees through the service charge.

What is the current status of the LFRA Act?

Only one element of the proposed new legislation has been implemented; however, the suggested reforms are complex and there is likely to be lengthy secondary legislation for some of the proposals.

The current Labour government has explained that it hopes to deal with implementation of the Act swiftly and in November 2024, the Housing Minister, Matthew Pennycook, set out a timeline. He has also added new sections to the proposals.

What has been proposed in the new Act with regards to the lease extension process?

The LFRA promises to deal with the following, with regards to lease extensions (and collective enfranchisement):

• Removing the two-year ownership requirement before you can apply to extend your lease under the act
• Removing the marriage value when a lease term dips below 80 years;
• An extension of the term granted for a new lease from an additional 90 years to 990 years.

The additional measures that were mentioned by Matthew Pennycook in November 2024 are:

• To ban the creation of new leasehold flats and reinvigorate the ‘commonhold tenure’
• To regulate ground rents, but not necessarily abolish them
• To end forfeiture where the leaseholders can lose their flats for debts as low as £350.

On 31 January 2025, the first reform in the timeline came into force, meaning leaseholders will now no longer need to have owned a property for two years in order to begin to extend their lease or apply for collective enfranchisement process.

How will the removal of the two years ownership clause affect a leaseholder wishing to extend?

Previously, a leaseholder was required to show that they have owned the property for at least two years in order to qualify to extend under the terms of the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA). On 31 January 2025, this requirement was removed. This means that a new owner of a flat can apply to extend the term. This will have a subtle effect on the conveyancing of flats which are at the point of needing to extend the term of years.

Sometimes, a buyer of a flat will put a seller in a position of having to extend or collectively enfranchise before they will buy. Now that the new owner can start the process themselves as soon as they have completed on their purchase, this should allow more flexibility for both the buyer and the seller. However, most people buying a property with a shortening lease will probably continue to ask the seller to deal with this ahead of their purchase.

This new regulation is welcome and a positive sign that elements of the proposed reforms are at last being implemented. It will also simplify the process for leaseholders, as the two-year ownership will not need to be proved.

How will the new Leasehold and Freehold Reform Act 2024 (LFRA) impact you if you have a lease that has 80 years or less left on the term?

As the Act is not yet fully in force, we can only advise on the current legislation that provides us with the framework within which to deal with the lease extension or the collective enfranchisement process. This means that if your lease is near or below the 80-year mark, you currently need to consider extending before the marriage value will be added to the premium calculation.

The proposed new legislation promises to abolish the marriage value element.  However, until it is in force, leaseholders are looking at the premium increasing year-on-year due to the marriage value, which is currently included within the calculation made for the premium as your lease term gets shorter.

The decision on whether or not to extend is subjective and will vary from person to person, depending on exact circumstances. We can discuss this with you in detail and explain to you what your options are and what the cost implications will be. Expert valuation advice will also be essential for you in making the decision on whether to proceed or not.

How might the new Leasehold and Freehold Reform Act 2024 (LFRA) impact you if you have a lease that has 85-95 years left on the term?

The premium is going to payable now or after the Act is fully in force. So, you will need to extend the term, especially if you have a lender or if a buyer has a lender.

It’s worth noting that lenders vary on their requirements with regards to the lease term. While it is possible to find a lender who will lend on a shorter lease term (for example, 60 years), your property will be more ‘marketable’ to a larger audience if it has a decent length of term – well over 80 years.

We advise you to seek professional valuation advice to calculate the premiums payable in either scenario.

For advice and guidance on your particular set of circumstances and the best course of action, please do not hesitate to get in touch with our expert freehold and lease extension specialists, who will be able to help, as well as weigh up the likely costs.

Our highly rated residential property team has a reputation for excellence, thoroughly and efficiently helping clients through a range of challenges that may arise.