Leasehold and Freehold Reform Act 2024 explained
June 11, 2024
The Leasehold and Freehold Reform Act 2024 has finally become law in England and Wales, introducing some ground-breaking changes aimed at giving homeowners more rights, power and protection.
But what does this mean for you? Let’s break it down…
What’s the difference between Leasehold and Freehold?
Before we get into the nitty-gritty of the new reforms, it’s essential to understand the difference between leasehold and freehold properties.
Freehold
When you own a freehold property, you own the building and the land it stands on outright.
This means you have full control over it, and you don’t have to pay ground rent or service charges to a landlord. Think of it as having complete ownership and responsibility of your property.
Leasehold
In contrast, owning a leasehold property means you own the building (or a part of it, like a flat) but not the land it stands on.
The land is owned by a freeholder, and as a leaseholder, you have a lease agreement that gives you the right to live in the property for a set number of years – typically ranging from 99 to 125 years, but it can be more or less.
During this time, you might have to pay ground rent, service charges, and maintenance fees to the freeholder. It’s like renting a piece of land where your home sits, with the potential for added costs and less control.
Now that we’ve cleared that up, let’s dive into how the Leasehold and Freehold Reform Act 2024 is shaking things up.
A new era for Leaseholders
The Leasehold and Freehold Reform Act aims to enhance the rights and protections for homeowners, making it easier and more affordable for leaseholders to extend their leases, purchase their freeholds, and manage their buildings. However, like any piece of legislation, it comes with some compromises.
Highlights of the Leasehold and Freehold Act
Lease extensions
The standard lease extension term has been increased dramatically. For houses, it jumps from 50 years to 990 years, and for flats, from 90 years to 990 years. This move is designed to give leaseholders long-term security and peace of mind without the constant worry of lease renewal.
Banning new leasehold houses
The Act bans the sale of new leasehold houses, except in exceptional circumstances. This means that all new houses in England and Wales will be freehold, simplifying property ownership and reducing potential conflicts between leaseholders and freeholders.
Service charge transparency
Owners on private and mixed-use estates are now entitled to standardised information on the service charges they pay. This transparency makes it easier to challenge unreasonable costs, ensuring that leaseholders aren’t unfairly charged.
Immediate lease extensions on freehold purchases
Leaseholders can now extend their lease or buy their freehold immediately upon acquiring the property. Previously, they had to wait two years, which often delayed their ability to make long-term plans for their homes.
Increased non-residential floor space limit
The limit of “non-residential” floor space in a building has been increased from 25% to 50%. This change means more tenants in mixed-use properties will qualify to participate in collective enfranchisement or the Right to Manage.
So, what does this all mean for you?
For leaseholders
If your lease is nearing the 80-year mark or your ground rent is high, these reforms could make extending your lease or purchasing your freehold significantly cheaper. However, if your lease is already above 80 years and your ground rent is low, you might not see the same financial benefits.
For leasehold landlords
These changes mean that new houses will generally be sold as freehold, potentially reducing the number of new leasehold properties. You’ll need to adapt to the new norms and ensure you’re compliant with the transparency requirements around service charges.
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This article is a guide and not intended to be relied upon as legal or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Always speak to a suitably qualified professional if you require specific advice or information.
