New Leasehold Law Brings Major Changes

May 28, 2024

As the government pushes through final legislation before the general election, a significant new law has been passed to reform leasehold and freehold arrangements. The Leasehold and Freehold Reform Act, effective from May 24th, introduces substantial changes aimed at protecting homeowners and leaseholders from unfair practices that have plagued the housing market for years.

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Tackling Ground Rent and Hidden Costs

The spotlight on leasehold reform intensified following the 2019 "ground rent scandal," which revealed how some homeowners were trapped by escalating ground rents. Developers had included clauses in contracts that allowed ground rents to double periodically, often without clear disclosure to buyers. This made it difficult for affected homeowners to sell their properties, as potential buyers were deterred by the rising costs.

Since 2022, ground rent on new-build houses has been abolished. The new Act builds on this by addressing other critical issues.

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Key Features of the New Law

Easier Freehold Purchase and Lease Extensions: The Act makes it simpler and more affordable for leaseholders to buy their freehold. Lease extensions for houses and flats are now set at a standard 990 years, significantly reducing the hassle and expense of future extensions.
Transparency in Service Charges: Landlords and managing agents are required to provide service charge bills in a clear and standardised format. This increased transparency allows leaseholders to better scrutinise and challenge unfair charges.
Challenging Unfair Charges: The new law removes obstacles for leaseholders to contest unreasonable fees from landlords at Tribunals, making it easier to hold them accountable.
Ban on New Leasehold Houses: Except in rare cases, the sale of new leasehold houses is now banned, ensuring that most new houses will be sold as freehold, giving buyers full ownership from the start.
Regulation of Building Insurance Commissions: Excessive commissions on building insurance for freeholders and managing agents are prohibited, replaced by fair and transparent handling fees.
Streamlined Lease Management: The Act simplifies the process for leaseholders to take over the management of their buildings, allowing them to choose their managing agents.
Redress for Homeowners: Homeowners on private and mixed estates now have the same rights as leaseholders to challenge unreasonable charges and poor management practices.
Inclusive Right to Manage: The threshold for leaseholders in buildings with commercial space to take over management or buy the freehold has been raised from 25% to 50%, enabling more homeowners to access these rights.

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Impacts on the Housing Market

Timothy Douglas, Head of Policy and Campaigns at Propertymark, acknowledges that while the new law isn't perfect, it represents a significant step towards reforming outdated and unfair practices in the housing market. "The new laws will make it easier to extend leases and provide more transparency, simplifying the process of buying, selling, and renting leasehold properties," he said.

However, Douglas also noted missed opportunities, particularly the need for further regulation and licensing of property agents to ensure competence and protect consumers amid increasingly complex building safety regulations.

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Moving Forward

The Leasehold and Freehold Reform Act marks a pivotal moment in the ongoing effort to create a fairer housing market. By empowering leaseholders and homeowners with more rights and protections, the Act aims to eliminate exploitative practices and provide greater security and transparency for all parties involved.

For landlords, these changes mean adapting to new regulations and ensuring compliance to avoid penalties. Staying informed and prepared will be crucial as the housing market adjusts to these significant reforms.