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How will flat owners benefit from the new Leasehold and Freehold Reform Act?

The Leasehold and Freehold Reform Act received Royal Assent before the ending of parliament for the general election. The main body of the legislation is likely to come into effect in 2025/26.

The new law aims to make leasehold rules fairer, easier to deal with and more transparent for those with leasehold homes.

The following are the main points that are likely to benefit flat owners.

Lease extensions to be for 990 years

Currently, most leaseholders have the right to extend their lease, but only for 90 years. The new Act extends this to 990 years. This means that over time, fewer leaseholders will have the problem of their lease falling towards 80 years remaining and less, which is when problems obtaining a mortgage can arise

No need to own your property for two years to extend your lease

There is no longer any requirement to own a property for two years before you can ask your landlord to grant a lease extension, with the right set to exist from day one of ownership.

The ending of ‘marriage value’ when extending a lease

The current calculation for the premium to be paid to extend a lease includes ‘marriage value’ when the term remaining on the lease has fallen below 80 years. This is a complex calculation based on a range of figures and makes extending a lease expensive.

It is hoped that a new provision abolishing marriage value will be implemented, meaning it will may be cheaper and more straightforward for leaseholders with shorter lease terms to extend.

Less liability for leaseholders to pay freeholders’ legal and valuation costs

Leaseholders are generally required to pay the landlord’s reasonable legal costs and valuation costs in addition to their own. This can make the expenses substantial. The new Act intends to change this so that landlords will have to bear their own costs in most circumstances. An exception may be if the premium for extending the lease is small.

Option to purchase ground rent

For those who do not need to extend their lease, there will be an option to purchase the ground rent, provided that they have more than 150 years remaining on the lease. This is an annual charge made by the landlord.

Service charges to be more transparent

Freeholders and managing agents will be required to provide a clear breakdown of service charges to allow closer scrutiny. This will give leaseholders the opportunity to challenge expenses that they do not believe to be reasonable.

An annual report will also be mandatory and this will need to include information about any major works that are planned to the building.

An increased right to manage

More leaseholders will have the right to take over the management of their block. Previously, where more than 25% of the property was commercial, it was not possible to take on the management. This has been changed so that properties with up to 50% commercial usage can be managed by the flat owners.

Easier sale process with information to be provided promptly

For those selling leasehold property, landlords and managing agents will be required to provide the necessary leasehold information pack within a set period of time. This aims to reduce hold-ups that can delay property sales.

Better access for leaseholders to challenge inadequate freeholders

Freeholders will be required to have membership of a redress scheme in the same way that managing agents currently do. This will allow leaseholders to raise issues with the scheme where necessary.

Buildings insurance commission to be transparent

Currently, the payment of commission to freeholders and managing agents when buildings insurance is arranged is not always clear. Commission is sometimes excessive and this can mean that those arranging the insurance do not look for the best deal for leaseholders. The new rules will allow transparent and fair fees only.

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For further information, please contact one of our Commercial Property experts.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.