Lauren Blackman, partner at Gardner Leader
The Leasehold & Freehold Reform Act was introduced in May of this year to bring long-term change to homeowning in the UK. The legislation’s main goal was to give more rights and powers to homeowners, particularly leaseholders. While the Act may be able to achieve this on paper, issues and delays to supporting legislation which would make the Act enforceable have left more than 5 million homeowners in limbo. With this being a Conservative piece of legislation, there are concerns that the Act may be delayed now that Labour has taken office following the General Election.
Uncertainty in the market
The purpose of the Act is to put more control in the hands of leaseholders, making it cheaper and easier to extend leases and buy their freeholds. However, even if Labour does choose to keep the Act, it is currently far from the finished article.
The Act unfortunately lacks some of the secondary legislation needed to be enforceable, meaning that there are plenty of grey areas for people to interpret.
One of the major sticking points relates to the length of leases. The new Act states that lease renewals must be set at 990 years (increased from 90 years for flats and 50 years for houses). This provision gives leaseholders the right to secure ownership of their property, with reduced cost and stress when attempting to extend their lease. However, due to the current delays plaguing the Act’s rollout, many leases are being renewed at the previous timescale.
The market is effectively split, with some choosing to honour the new legislation and issue 990-year renewals or extensions, while many others are looking to secure additional income by only providing 90 and 50 year extensions. There are also those in the middle waiting for the final pieces of the legislation to come into effect. The danger here for all parties is that whichever camp they are in, we may be months away from a resolution, leaving everyone in limbo.
Other key changes outlined under the Act include:
- Reduce costs for leaseholders by removing the requirement to pay the freeholder’s expenses when challenging poor practice.
- Allow leaseholders to purchase their freehold or extend their lease immediately after purchasing a lease, instead of waiting two years.
- Prohibit the sale of new build leasehold houses, with some exceptions.
- Remove marriage value (the increase of property value following a lease extension) from the cost calculation for leasehold enfranchisement.
Government intervention
Looking at government announcements from recent weeks, it is clear that their focus is on the creation of new homes in this initial period following the election. The new Chancellor of the Exchequer, Rachel Reeves, has said that house building is the foundation of economic growth, and with growth top of the agenda for the new government, we’re likely to see a big push within the residential property market. However, with millions of homeowners, and potentially tens of millions of individuals being impacted by a stalled Leasehold & Freehold Reform Act 2024, the government must pay it the attention it needs. But what would intervention look like?
The first action this new government should take is to review the legislation and decide whether it is something they support. The Act outlines changes which would be positive for many homeowners across the UK, however, it may not fit the agenda which Labour is pursuing.
If they do choose to keep the Act, then they must focus on providing the supporting legislation needed to make it enforceable. Currently the Act is only causing more uncertainty amongst leaseholders and freeholders. This shouldn’t be the case. Also, by delivering clarity, the government can improve the current outlook for millions, regardless of the direction they take.
Can homeowners prepare?
Government-level issues like this can be difficult to prepare for or predict. Unfortunately, without a set timetable, homeowners cannot prepare.
The most important thing is clarity; if the government confirm they will or won’t implement the necessary secondary legislation, then leaseholders will know where they stand.
