There has been a lot of focus on commonhold following on from the publication of the White Paper on Monday 3rd March 2025.

Here are some links to articles that have featured comments on this:

https://www.solicitorsjournal.com/sjarticle/government-to-introduce-commonhold-proposals?pass=bu90dz1gmy

and also in the Daily Mail

https://www.dailymail.co.uk/money/mortgageshome/article-14459167/Leasehold-ban-does-mean-flat-owners-future.html

Leasehold ban: What does it mean for flat owners now – and in the future? | This is Money

What is very clear is that the government plans to seek to ‘switch off’ leasehold as a form of land tenure for residential properties and Mr Pennycook has indicated that he would like to bring legislation on this forward ‘before the end of this parliament.’

There is a fair amount to do to ‘fix’ commonhold but it is good to see the government’s response to the Law Commission’s work on this.

Clearly before any ‘digital switchover’ to commonhold can take place it will have to be made fit for purpose. The work to do this will be in a Commonhold and Leasehold Reform bill to be announced later on in the year. Once we see that we will know what the scale of the proposed legislation will look like and I for one look forward to reading that. Mr Pennycook has realistically said that he anticipates that this legilsation may be on such a scale that it will take more than one Act of parliament to bring it into effect and that it may be that this wider programme of reform may stretch beyond this session of parliament.

We await further news of the draft bill in due course.

Mark Chick

7th March 2025

Today sees the coming into force of several provisions of the Leasehold and Freehold Reform Act 2024 (‘LFRA 2024’) relating to the Right to Manage. This note explains some more detail about this and what these changes mean for leaseholders and freeholders.
 
What is the right to manage?
 
Leaseholders have a collective right to take over the management of their building under a no-fault right known as the Right to Manage (‘RTM’). RTM is a statutory no-fault right introduced by the Commonhold and Leasehold Reform Act 2002 and provides a useful alternative to buying the freehold as there is no capital outlay (other than costs).

In order to effect this change at least half of the qualifying leaseholders in the building must serve the relevant notices and participate in the process.

What are the changes?

The reforms make changes to the basis of qualification, the ability of the landlord to recover costs in a standard case and to the articles of association of the Right to Manage Company.
 
Changes to qualifying buildings
 
Until now buildings would only qualify for RTM of not more than 25% of the property is used for non-residential purposes. Now, buildings with up to 50% of the property in non-residential (e.g. commercial use) will qualify for these rights.
 
This means that many more buildings will fall within the scope of the Right to Manage. The Act also proposes that the freeholder will not be able to recover its costs of dealing with the RTM claim from the leaseholders.
 
Landlord’s Costs – now generally not recoverable
 
Up until now the landlord has been able to recover the costs of dealing with the RTM claim from the RTM company at the end of the process. Now, the standard provision has been amended so that in a non-contentious claim the landlord cannot recover any of its costs from the RTM company or the participating leaseholders.
 
The law relating to service charges is being amended too so that non-litigation costs cannot be recovered via the service charge (where in the past this may have been possible in some cases where section 19 of the Landlord & Tenant Act 1985 would permit this).
 
There are some qualifications to this. Where a court or tribunal orders that a party should pay costs then an RTM company can be asked to pay the landlord’s costs. The First Tier Tribunal of the Property Chamber (FTT) will have the power to award costs where a claim has been made and withdrawn (or become deemed withdrawn), or where the RTM company has acted unreasonably. Members of the RTM company can be held jointly and severally liable for these costs. These are likely to be circumstances where there is a dispute about the validity of the notice or there is a challenge made to the actions of the RTM company.
 
However, the general effect will be that as costs will not be payable in an uncontested case that bringing an RTM claim has become less costly from the leaseholders’ perspective.
 
Changes to the RTM Company Articles
 
The RTM Company is a ‘creature of statute’ – its articles are prescribed by the Commonhold and Leasehold Reform Act 2002 (‘the 2002 Act’).
 
After the handover takes place, the landlord is entitled to a vote for each interest that it has in the building. This could include multiple interests and a concern was raised that the freeholder or a landlord could end up with control of the company or a very significant vote now that the qualification criteria have been amended so that a building with 50% non-residential will qualify.
 
To prevent this happening a set of regulations (the RTM Company (Model Articles) (England) (Amendment) Regulations 2025) have amended the standard RTM company articles so that now the votes exercisable by landlords cannot exceed one third of the votes exercisable by the qualifying tenants.
 
What else is changing?
 
There are also provisions preventing first instance applications to the High Court. This is to prevent attempts to circumvent the costs provisions. In addition, where a party seeks to enforce obligations arising under the RTM these applications must now be made to the tribunal rather than to the court in the first instance.
 
In Conclusion
 
These changes are part of the first raft of changes made under LAFRA and are as promised by Matthew Pennycook in his 21st November 2024 statement.
 
For leaseholders wanting to exercise the Right to Manage this is good news as the absence of landlord’s costs and the new qualification threshold will probably result in more claims. For managers and landlords, the need to obtain effective advice remains but with the sting that this is at their own cost when a claim is exercised. Will this lead to improved management service levels? Possibly, if the threat of ‘losing the account’ is there. It also might make claims more drawn out if landlords fail to respond.
 
Whilst these are not the most significant changes envisaged by LAFRA they are certainly ‘game changers’ in the field of Right to Manage.
 
Mark Chick
3rd March 2025
 

The Government has taken the first steps towards implementing the Leasehold and Freehold Reform Act 2024 with the abolition of the contentious two-year rule. The change is in force as of 31 January 2025 and is intended to make it easier and faster for leaseholders to extend their lease, or to buy the freehold to their leasehold house, from the first day of ownership.

As a result, leaseholders will no longer have to wait two years after the point of purchasing their property before exercising their right to extend their lease or buy their freehold.

As I predicted earlier in the year, this change is a ‘quick win’ for government and is one of the easiest provisions of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’) to have enacted.

There are several other provisions that have NOT yet been ‘switched on’ – notably the 990 years lease extension and the valuation changes.

Progress towards the valuation changes is likely to be slow, particularly given that yesterday the High Court gave permission for the six claimants in the Human Rights Act challenges to the legislation permission to bring their cases for judicial review of the legislation. The substantive hearing of this case is likely to take place towards the end of July 2025, around the same time that the Government plans to start consulting on the applicable ‘rates’ to be used in the revised leasehold reform valuation mechanism that LAFRA seeks to bring in.

I expect this to cause further delay to the implementation of the valuation reforms.

The two-year rule

Removing the two-year rule does make it easier for leaseholders to bring a claim to extend their lease under the 1993 Act, or for those owning a qualifying leasehold house to bring a claim to buy the freehold under the 1967 Act.

The two-year rule has always sat awkwardly with the position in relation to the 1993 Act for collective enfranchisement for blocks of flats where since the previous reforms in the Commonhold and Leasehold Reform Act 2002 there has been no ‘two year’ ownership requirement.

There are some technical points to be observed as well. The qualifying tenant must be the owner of the property to bring the claim and the registered owner at that. That means that during the so called ‘registration gap’ after a purchase that the person owning the title (even if they have sold) may need to give the claim notice and the benefit of this will need to be assigned. That issue will fall away assuming that registration goes through quickly but as we know from current experience the Land Registry can be subject to lengthy delays.

The bigger picture

In terms of the broader picture of leasehold reform, this is a step in the right direction, but leaseholders have been waiting a considerable amount of time for further changes to be forthcoming. Although the Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, much of the secondary legislation within the Act remains to be implemented and many of the much-needed reforms contained in the Act remain some way off.

There is also the promise of a new piece of legislation – a draft Commonhold and Leasehold Reform Bill. There is no sight of this yet but this is likely to be a large piece of legislation and one that will not hit the statute books or come into force quickly. We await a draft Bill later this year, along with the promised White Paper on Commonhold.

The year 2025 promises to be a busy year for leasehold reform, with a number of consultations promised.

However, for those purchasing a leasehold property, the abolition of the two-year rule at least provides them with the flexibility and choice to about when to seek a lease extension, provided that the lease is acceptable for lending purposes (otherwise they will still need to seek to put an extension in place before completing).

In the meantime, for those with a short lease the time to act may well be now, although, as ever specific facts and circumstances will determine what the right course of action will be.

Mark Chick

31.1.2025

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.

Mark Chick

30th January 2025