Leasehold reforms are a mixed bag for property owners

Leasehold reforms a mixed bag for property owners

Leasehold reforms a mixed bag for property owners

By Erin Cronin and Nicola Tubbs, Supervising Directors, Palmers Solicitors

Prior to the dissolution of Parliament on 24 May 2024, the long-awaited Leasehold and Freehold Reform Bill passed into law, receiving Royal Assent and delivering a number of new and strengthened rights to homeowners.

While this is undoubtedly welcome news for homeowners, the Act is markedly different from the one that was first proposed, with some key elements scrapped late in the day.

Additionally, the latest Government guidance suggests that the reforms will not come into effect until 2025 or 2026, with secondary legislation still needing to be fleshed out.

We are therefore seeing a lot of uncertainty around the Act as it moves quickly into law and expected issues have not been addressed – including the proposed changes to the Law and Property Act (LPA) 1925 as introduced in Clause 59(2) of the Bill to put an end to the exercise of Section 121 LPA 1925 remedies if the rent charge is “regulated” or income-only.

Leasehold homes

The headline move in the Act was to ban the sale of new leasehold houses, a measure backed by campaigners and consumer rights groups in a bid to end high service charges and ground rents for leasehold homeowners.

However, we saw a steep decline in the number of leasehold houses sold in the UK before the introduction of the Act, and the vast majority of leasehold properties now on the market are flats and apartments.

Despite initial proposals to the contrary, the Act does not ban the sale of new leasehold flats and therefore does not fully tackle a major issue facing those on the property market.

Lease extensions

The other critical aim of the Act is to make it easier, cheaper and more accessible for homeowners to buy a freehold or extend a lease.

In this regard, the Act has been more successful than it has been in eliminating the sale of new leasehold properties.

New leaseholders no longer need to own their home for two years or more before they can apply to extend a lease or buy a freehold.

Additionally, the standard term for leasehold houses and flats will also be extended to 990 years, up from 50 years for houses and 90 years for flats. Reflecting the growing need for security among leasehold homeowners, this substantial increase aims to remove the need for continued lease renewal and the costs that come with it.

Cost is a major concern among leasehold homeowners, so this is a welcome step forward for many leaseholders while still supporting the rights of freeholders where necessary.

Service charges and rent

Service charges remain an intense battleground for proponents and opponents of leasehold reform. We have seen a number of cases receiving national publicity in the run-up to the calling of a General Election in which high service charges have prevented leaseholders from selling a property or properly managing the cost of living.

Service charge bills must be issued in a standard format with high levels of transparency to allow leaseholders to challenge unfair costs. The Act has also banned high building insurance commissions for freeholders and managing agents, replacing them with transparent handling fees.

It is also worth noting that one of the major elements of the proposed Bill which did not make it through Parliament before 24 May was the cap on ground rent at £250 for existing leaseholders.

This is not necessarily the situation that leaseholders and campaigners were hoping for, although the Act has still removed a number of costs which have previously prevented homeowners from exercising their rights and enjoying long-term security in their homes.

Challenging poor practice

Ultimately, the Act is aimed at enhancing the right of leaseholders and offering more security for homeowners. To that end, it has also made it easier and more cost-effective for leaseholders to challenge poor practices among freeholders and managing agents.

Leaseholders will no longer automatically be expected to pay freeholders’ legal costs when challenging unfair practices.

Removing a significant barrier to taking matters to Tribunal, the Act has gone a long way to achieving its goal of supporting the rights of leaseholders – although the version of the Act which was passed by Parliament may not have been what leaseholders were initially expecting.

We expect to see the Act evolve in practice over the coming years as it is implemented and enforced. We also look forward to examining how the residential housing landscape will change in the coming years as leasehold properties become a thing of the past for many.

For advice on leasehold properties and transactions, please contact our Residential Property team today.