How will the Leasehold and Freehold Reform Act impact homeowners?

Leasehold and Freehold Reform Act – What you need to know

In one of the final acts of Rishi Sunak’s Conservative Government, reforms to leasehold and freehold in England and Wales have become law, bringing significant changes for homeowners and landlords.

This new legislation aims to make it cheaper and easier for leaseholders to extend their leases, purchase their freeholds, and manage their buildings. However, the promised cap on ground rents for existing leaseholders was notably absent from the final Act.

The Leasehold and Freehold Reform Act introduces several important changes that will impact various stakeholders.

Easier and cheaper lease extensions

Leaseholders can now extend their lease terms to 990 years for both houses and flats. This extension reduces the need for future renewals and provides greater security.

Greater rights and protections

The Act grants leaseholders more transparency and control over service charges, allowing for better scrutiny and challenges against unreasonable charges. Additionally, it removes barriers for leaseholders to challenge their landlords’ charges at a tribunal.

Ban on new leasehold houses

Except in exceptional circumstances, the sale of new leasehold houses is now banned. This change ensures that new houses in England and Wales will generally be freehold from the outset.

Implications for homeowners

For leaseholders, the Act brings numerous benefits:

Extended lease terms – With lease extensions now available up to 990 years, homeowners can enjoy long-term security without the worry of future renewals.

Improved transparency – Enhanced transparency over service charges allows leaseholders to better understand and challenge the fees they are required to pay.

Rights to redress – Homeowners on private and mixed tenure estates will have equivalent rights to leaseholders in terms of transparency and the ability to challenge estate charges.

Considerations for landlords and developers

Landlords and developers need to be aware of the new obligations and potential impacts on their business models:

Standard lease terms may need to be reviewed and potentially extended to align with the new legislation.
The inability to recover certain costs from leaseholders may lead to increased expenses for landlords.
Understanding and complying with the new obligations will help to avoid potential disputes with leaseholders.

Future prospects

While the Act introduces substantial changes, it has faced criticism for not addressing ground rents under existing leases. In the run up the 2024 General Election, the Labour party had pledged to remove leasehold within the first 100 days of its Government.

While it has since dropped this pledge, it is expected that the new Government will make further reforms to this Act, and may yet abolish leaseholds altogether, albeit not within the first 100 days of Government.

With this in mind, it is important to remain informed and watch out for any further developments in the leasehold and freehold sector.