So we have the outcome of the permission hearing in the High Court today – the six claimants have been granted permission to apply for Judicial Review of various provisions in LAFRA 2024, including marriage value, the implied ground rent cap in the new valuation model, cost shifting and the issues known to affect intermediate landlords.
The substantive hearing will not be until the end of July. That will chime in nicely with the proposed consultation on setting rates that is promised for the later part of this year.
It seems to me that none of these provisions can be brought into force without the government knowing where it is likely to be on these issues. This (together with the prospect of any appeals etc) may make the proposed ‘switch on’ of the valuation aspects of LAFRA some way off.
There is no doubt much to consider when advising clients. Does this make the time line look even more like 12-18 months from a date later on this year?
Would that mean 2027? Or maybe even later? Dependant perhaps also on the proposed Commonhold and Leasehold Reform Bill? Lots to consider.
The Leasehold and Freehold Reform Act 2024 (Commencement No.2 and Transitional Provision) Regulations 2025
On 22nd January 2025, Matthew Pennycook confirmed that he had signed the snappily entitled ‘Leasehold and Freehold Reform Act 2024 (Commencement No. 2 and Transitional Provision) Regulations 2025.’
These bring into law the provisions of Section 27 of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’), which removes the requirement for a qualifying tenant to have owned their flat for more than two years prior to bringing a claim to an extended lease.
The provisions of Section 27 come into effect from the 31st January and therefore claims made on or after this date can simply be made by the qualifying tenant.
What does this mean in practice?
It’s good news for those buying a property with a short lease – no need for a two-year wait – but, as always, things are never that straightforward. The valuation regime has not yet changed and therefore the question of whether to go ahead will require consideration, particularly if the lease extension premium is likely to be significant and might be reduced as and when the changes to ‘marriage value’ (which applies only where the lease is under 80 years) come into effect.
Good news for those who have a short lease that they are trying to sell
The fact that the buyer won’t have to wait to extend a lease will, in theory, mean that there will be no need to have the benefit of the claim assigned to the buyer, although as mentioned above, without the valuation reforms there is no other immediate benefit. The commencement does mean that the buyer can go ahead and then choose when to extend the lease.
However, this won’t avoid the issue for leases that need to be extended for mortgage reasons. In other words, if the lease needs to be ‘long’ for lending purposes then the lease extension will still have to be put in place before completion.
Legal Title – is there an issue?
Who can make the claim? The qualifying tenant
Section 43 of the 1993 Act is still in force. The claim cannot exist separately from the lease. And therefore, if the previous owner does start the claim (for whatever reason) the claim does still need to be assigned.
The reason for this is that when you buy a property, the title register is not immediately updated. Delays at the land registry, which for a standard non-urgent transaction can take up to two years, are well documented and leave something of a ‘Registration Gap’.
In the short term, even after completion, the seller (who is still the registered owner of the title, even though they no longer own the property) is a ‘constructive trustee’ for the buyer, during the so-called ‘registration gap.’
In terms of who has title to bring the claim, this is likely to be the registered owner; and that person is the ‘tenant’ under the terms of the lease.
All well and good if the registration can be expedited (there are grounds for doing this, one of which would be hardship) but evidence must be shown to the land registry. For instance, a lease that was very short and where a delay might cause prejudice/ increasing cost on a daily basis might be good grounds. However, is the land registry ready for an influx of new applications? I am not so sure about that. So, we may still see assignments of the benefits of claims and notices for some time to come.
What does this mean in practice?
Essentially this is good news for leaseholders as there is no two-year wait to initiate a claim, but they will need to sure that they have appropriate evidence of their qualification, and this may cause some issues in practice.
Whilst we await the reforms, the question of whether to serve notice or not remains a live issue and can only be decided based on the leaseholder’s individual situation. One thing does remain clear, if you are buying a property where the lease needs extending, getting the right advice about how to approach this will still be key.
