UK Housing Market Update Leasehold Reform Act Passes into law.
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The UK leasehold system has been a contentious issue, some argue it’s one of the biggest scams in history. The current system, which dates back to feudal times, sees homeowners purchasing property but not the land it stands on. Instead, they lease the land from a freeholder, often for 99 years or more.
In theory, this feudal relic has reformed by the Leasehold Reform (Ground Rent) Act which was passed into law by Parliament and granted the ‘Royal Assent’ on 24 May 2024, just before it was closed for the forthcoming election. Many feel it has been watered down from its original aims.
Read the Act in full https://bills.parliament.uk/bills/352...
Leasehold Reform Act Summary
• An Act to prohibit the grant or assignment of certain new long residential leases of houses,
• Amend the rights of tenants under long residential leases to acquire the freeholds of their houses,
• Extend the leases of houses or flats, and
• Collectively enfranchise or manage the buildings containing their flats,
• Give such tenants the right to reduce the rent payable under their leases to a peppercorn,
• To regulate the relationship between residential landlords and tenants,
• To regulate residential estate management,
• To regulate rent charges and to amend the Building Safety Act 2022 in connection with the remediation of building defects and the insolvency of persons who have repairing obligations relating to certain buildings.
The new law will be good news for most leaseholders, especially those holding short leases.
Summary of benefits to leaseholders known as tenants.
• New rights for leasehold tenants to acquire their freehold; under the new legislation it will be cheaper and easier for tenants to buy a share of their freehold
• Tenants will no longer have to pay freeholder’s legal costs
• Selling new houses on a leasehold basis will be banned in England and Wales
• All new houses sold will be on a freehold basis.
• Standard lease extension terms increase to 990 years for both houses and flats (was 50 years for houses, 90 years for flats).
• The new law means ‘marriage value’ will not be split with a freeholder. Marriage value is the hypothetical profit resulting from the extension of a short lease (being one with less than 80 years remaining). However, deferment and capitalisation rates still need to be set (and will be prescribed when the Act is brought into force). The deferment rate is the figure used to calculate how much compensation a tenant pays to their landlord when extending the term of their lease. It is a crucial element in calculating the premium an owner must pay to extend their lease (or to secure a share of the freehold) and ultimately any change in the rate could be more costly for those with more than 80 years left to run on their leases where they are seeking to extend.
• Tenants will no longer have to own a property for 2 years (as per the Leasehold Reform Act 1967) before extension of a lease can be applied for, meaning extensions can be obtained from completion of a purchase.
• Enfranchisement for semicommercial properties will change from 25% to 50%. It has not possible to enfranchise a building which had over 25% of commercial parts; the new Act will qualify more buildings permitting leaseholders an opportunity to purchase the freehold or access the Right to Manage.

Landlords will now have to demand Service charges in a standard form and provide more clarity. Tenants will have the right to challenge unreasonable charges.
A new ban on commissions made on insurance by freeholders and/or managing agents and more transparency on fees for placing insurance.
The legislation will require those freeholders who manage any buildings to belong to a redress scheme enabling leaseholders to challenge charges.
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