We’re excited to share what 2024 has in store for leaseholders, freeholders, and those navigating the complexities of the UK property market. The Leasehold Reform Act of 2024 brings significant changes that could reshape how leasehold properties, both houses and flats, are bought, sold, and managed. Whether you own a leasehold flat or house or you’re looking to buy freehold ownership, these reforms will have a direct impact on you. This blog will help you understand everything you need to know about the leasehold reform, the key changes being introduced, and what they mean for property owners.
The leasehold system has long been a subject of debate in the UK, with calls for reform going back decades. The Leasehold Reform 2024 is a significant step towards addressing these issues, making it easier and more affordable for leaseholders to extend their leases, purchase freeholds, and navigate the sometimes complex process of managing their property. Whether you’re a leaseholder or considering purchasing a leasehold property, you need to stay informed about these key provisions.
What is Leasehold Reform, and Why is it Important?
Leasehold reform is aimed at improving the rights of leaseholders, those who own the property but not the land it stands on. Leaseholders typically pay ground rent and service charges to the freeholder (the landowner) and have a lease that determines how long they can stay in the property before it reverts to the freeholder.
One of the most significant changes in the Leasehold Reform Act 2024 is the abolition of marriage value and the introduction of a ground rent cap. The Act also simplifies the lease extension process, capping ground rents and addressing other concerns such as building insurance and service charges. These reforms are long overdue, and they represent a significant victory for leaseholders.
Leasehold Reform 2024: What You Need to Know
The Leasehold Reform Act 2024 is a comprehensive piece of legislation that aims to give leaseholders greater control over their properties and reduce the financial burden of ground rent payments and lease extensions. Here’s a breakdown of the key changes:
1. Abolishing Marriage Value
One of the most anticipated aspects of the leasehold reform is the abolition of marriage value. Previously, if your lease length dropped below 80 years, the cost of extending it would increase significantly due to marriage value. The 2024 reform removes this, making lease extensions cheaper for those with short leases. This is a game-changer for leaseholders whose existing lease is approaching the 80-year mark.
2. Capping Ground Rents
Ground rent has been a contentious issue for years, with some leaseholders paying exorbitant fees. The new Leasehold Reform Act introduces a cap on ground rents for new leasehold houses and flats. For existing leaseholders, while ground rent won’t be abolished altogether, there will be limits on how much it can increase. This is especially important for those with high-ground rents who have seen their property value negatively affected by these charges. The ground rent cap will apply to both residential leasehold properties and mixed-use buildings, helping to ensure that ground rent remains fair and affordable.
3. Freehold Purchase Prices
The Act introduces reforms that will impact how freehold purchase prices are calculated. Previously, freeholders could demand high prices for leaseholders looking to buy their freehold, but the Freehold Reform Act 2024 aims to standardise and lower these costs. This change will make freehold ownership more accessible, especially for those living in leasehold houses or flats where purchasing the freehold has previously been prohibitively expensive.
4. Extending Leases
The reforms will also streamline the process of extending leases. Currently, the standard lease extension term adds 90 years to your existing lease, and while this will remain the same, the process of obtaining an extension will be simplified. The freeholder’s costs involved in the lease extension process will also be limited, making it more affordable for leaseholders to secure longer leases. This change is especially important for those with long residential leases who want to avoid the complications of a short lease.
5. Limiting Ground Rent in Existing Leases
While the new legislation aims to abolish ground rent for new leasehold flats and houses, it also addresses existing leases. Ground rents in residential leases can no longer be increased indefinitely. This reform protects leaseholders from escalating costs and will apply to both private estates and residential tenants.
6. Reducing Legal Costs
Legal fees have often been a major barrier for leaseholders trying to extend their lease or purchase their freehold. The Leasehold Reform Act introduces measures to reduce these legal costs, making it easier for leaseholders to navigate the process without facing exorbitant fees. This will also apply to those looking for an informal lease extension, which has been a common route for avoiding the complexities of a formal process.
The Role of the Labour Government in Leasehold Reform
The Labour government has played a significant role in pushing for these reforms. Following intense campaigning from leaseholder groups and property law experts, the Labour government committed to addressing the flaws in the leasehold system. This includes tackling unfair ground rents, simplifying the lease extension process, and introducing more protections for leaseholders. These changes are designed to strengthen existing consumer rights, making the property market fairer for everyone.
What About the Freehold Reform Bill?
In addition to the Leasehold Reform Act, the Freehold Reform Bill also received royal assent in 2024. This bill focuses on making it easier for leaseholders to purchase the freehold of their property, particularly in cases where freeholders have been uncooperative or have demanded unreasonable prices. The freehold reform changes aim to give leaseholders more control over their homes, whether they live in leasehold houses or flats.
The Future of Leasehold and Commonhold Reform
Looking ahead, the government is planning to introduce a Commonhold Reform Bill, which could further change the landscape for leaseholders. The goal of this bill is to encourage more developments to adopt the commonhold system, which offers a more straightforward form of ownership compared to leasehold. In a commonhold, residents own their flats outright and share ownership of communal areas without the need for a freeholder. This could be a major shift for those living in new leasehold flats and houses, offering a more secure form of homeownership.
Secondary Legislation and Remaining Law Commission Recommendations
While the Leasehold and Freehold Reform Act 2024 has already made significant strides, there is still more to come. The government will need to pass secondary legislation to implement some of the finer details of the reform. Additionally, the Law Commission has made several recommendations that are yet to be addressed, such as simplifying the process for leaseholders in mixed-use buildings and providing more protections for those living in private estates.
How Does the Leasehold Reform Impact Property Values?
With these changes in place, many leaseholders are wondering how their property value will be affected. On the whole, the reforms are expected to boost property values, particularly for those with existing leaseholders who are now able to secure longer lease extensions or purchase their freehold at a more reasonable cost. However, there may be some fluctuations in the property market as the reforms are fully implemented and as residential leaseholders navigate the new legislation.
Key Considerations for Leaseholders
With the current leasehold reform 2024 law, leaseholders need to consider how the changes affect them. If your lease term is approaching the 80-year mark, it’s worth looking into a lease extension now, particularly with the abolition of marriage value. If you’re in a new lease or own a property with low ground rent, you may benefit from waiting to see how the leasehold reform bill affects ground rent payments and freehold purchase prices.
Managing Agents and Building Insurance
The reforms will also impact how managing agents operate and the costs they can charge. Many leaseholders have faced challenges with high service charges, and the reforms aim to address these by introducing more transparency and fairness in how building insurance and other fees are calculated. This will particularly benefit those in mixed-use buildings, where service charges can be a significant financial burden.
Final Thoughts
The Leasehold Reform 2024 represents a major shift in how leasehold properties are managed in the UK. By abolishing marriage value, capping ground rents, and simplifying the lease extension process, the reforms make it easier for leaseholders to secure longer lease extensions and gain more control over their homes. As we move forward, there is still more to be done, particularly with the upcoming Commonhold Reform Bill and other legislative changes. At Smart Move, we’re committed to keeping you informed about these developments and helping you navigate the evolving property landscape.
If you have any questions about the Leasehold Reform 2024, or if you’re considering a lease extension or freehold purchase, get in touch with us. Our team of experts is here to help you make the smart move towards secure ownership of your home.
Contact Smart Move today for personalised advice on how the leasehold reforms affect you. Whether you’re looking to extend your lease, purchase your freehold, or simply want to know more about the new legislation, we’re here to help you make the best decisions for your future.
Frequently Asked Questions (FAQs)
The Leasehold Reform 2024 is a set of legislative changes designed to improve the rights of leaseholders. It aims to make lease extensions cheaper, cap ground rents, and remove the marriage value, which previously increased costs for those with short leases. It also simplifies the process for freehold purchases and offers more protections for leaseholders across the UK.
Marriage value is the increase in a property’s value when the leaseholder extends their lease. Under the old system, if your lease had fewer than 80 years left, you had to pay this additional cost. The Leasehold Reform Act 2024 abolishes marriage value, making it more affordable to extend leases, particularly for those with shorter terms.
The new ground rent cap will prevent ground rents from being excessively high, particularly in new leasehold properties. For existing leases, ground rents can no longer be increased indefinitely. This protects leaseholders from excessive rent hikes that can negatively impact their property value and make it harder to sell.
The reforms apply to all residential leasehold properties in England and Wales, including both leasehold houses and flats. However, the abolition of ground rent applies primarily to new leases, while existing leaseholders will see limits on how much their ground rents can increase.
Yes. The Leasehold Reform Act is expected to make lease extensions cheaper by removing marriage value and simplifying the lease extension process. This is especially beneficial for those with leases approaching the 80-year mark or those who would have faced high costs for extensions under the old system.
Yes, the reforms make it easier and more affordable to purchase the freehold of your property. The Freehold Reform Act 2024 standardises and reduces the cost of buying your freehold, ensuring that freehold ownership is more accessible for leaseholders.
Yes, the Leasehold Reform 2024 includes measures to reduce legal costs for leaseholders. Whether you’re seeking a lease extension or purchasing your freehold, the Act aims to streamline the process and lower the fees involved.
While the focus of the reforms is on lease extensions and ground rents, there are also provisions to increase transparency around service charges and building insurance costs. The Act aims to prevent excessive charges by managing agents, particularly in mixed-use buildings.
If your lease length is above 80 years and you have a low ground rent, you may not see a significant change immediately. However, you’ll still benefit from the cap on ground rents and the ability to extend your lease without paying marriage value. It’s still worth considering whether to extend now or wait for more reforms.
The Commonhold Reform Bill is a proposed piece of legislation aimed at encouraging commonhold ownership, which offers a more straightforward form of property ownership without the need for a freeholder. This bill complements the Leasehold Reform Act 2024 by offering an alternative to the traditional leasehold system, particularly for new developments.
