The Leasehold and Freehold Reform Act 2024 (Commencement No.2 and Transitional Provision) Regulations 2025

On 22^nd 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.’

https://www.legislation.gov.uk/uksi/2025/57/contents/made

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 31^st 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.

Mark Chick

28^th January 2025

Matthew Pennycook’s recent ministerial statement made on 21^st November 2024 confirmed the Government’s plans regarding the implementation of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’). The statement recognised the need to ‘balance speed with care’ and also, that whilst the Government intends to ‘work at pace’ it will also ‘take time to ensure the reforms we pass are fit for purpose.’

All of this underpinned by the recognition that there are significant steps that need to be taken before any of the more ‘meaty’ provisions of LAFRA can be brought into force.

However, we do have one assurance about a ‘quick win’ for leaseholders. The statement promises that:

“We intend to commence the Act’s provision to remove the ‘2-year rule’ in January next year. This will mean that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold…” 

This refers to the proposed implementation of Section 27 of LAFRA which will remove the two-year ownership rule that applies before a leaseholder can qualify for the statutory right of lease extension under the 1993 Act or the right to buy the freehold to a long leasehold house under the 1967 Act. 

Whilst we will have to wait some significant time for any of the valuation changes to come into force, this has been promised as an early new year present to leaseholders and will at least mean that where a flat is being purchased that the buyer will not have to necessarily insist that the seller serves a Section 42 Notice and that this is assigned to them. They will instead be able to initiate the claim at a time of their choosing. 

Although, if a lease needs to be extended because of mortgage conditions (e.g. the lease is under 80 years or of a length that is not acceptable because it is shorter) then the issue of needing a longer lease at completion will not go away and the only immediate solution in such cases will be a voluntary extension. In other cases, I anticipate that mortgage lenders may write in conditions such that the owner will have to initiate a claim to a lease extension within a certain specified period of completion taking place.

For those looking to buy the freehold to their qualifying long leasehold house (the lease must be a fully repairing lease of the whole – inside and out) this will also mean that those having recently purchased will not need to wait two years before initiating a claim to buy the freehold. This could be good news for anyone who has purchased in a new-build situation and wants to proceed right away to buy the freehold. 

All of this will have to be tempered with the fact that the valuation reforms are some significant way off. Therefore, whilst this may resolve matters for buyers who don’t have to wait to start a claim and won’t necessarily have to ask the seller to initiate the process for them, any bigger changes to what the leaseholder is likely to pay will have to wait for these further reforms to come to pass, which on any analysis (and my best guess) is likely to be some 12-18 months on from the middle of next year.

At the moment, we don’t have sight of any draft commencement provisions, and so these provisions are not yet in force, but we can anticipate some news on commencement provisions either as an early Christmas present or perhaps in the early part of the new year.

Watch this space for further developments.

Mark Chick 

16^th December 2024

The 2024 Leasehold and Freehold Reform Act (‘the 2024 Act’) received Royal Assent right at the end of the final session of this Parliament and appeared at the very end of the list of Acts approved in the ‘wash up’ on 24^th May 2024.  

With the propsect of a new government now imminent it makes sense to consider where we are now and what might be ‘to come’ following the results of the general election on 5th July 2024.

What will come into force now?

Whilst a few parts of the 2024 Act will come into force later this month on 24^th July 2024 these are fairly ‘minor’ changes in the greater scheme of things and relate to:

• restrictions on pursuing rent charge arrears (such that now a demand statement must first be served in a prescribed format at least 30 days before taking any action)
• an amendment to the BSA to allow flat owner controlled freehold companies and RTM companies the right to recover costs under Schedule 8 of that Act (where otherwise ordinarily the landlord cannot recover costs under the service charge) in relation to the pursuit of a ‘relevant defect’
• the repeal of Section 125 of the BSA 2022 and its replacement with a new Section 125A dealing with the duties of an insolvency practitioner appointed in respect of a ‘responsible person’ (either an ‘accountable person’ for higher risk buildings or the owner or party responsible for the common parts of a ‘relevant building’)

What is not in force? And when will these provisions become law?

The remaining sweeping changes that the Act promises are not yet in force. A short summary of these appears below:

What does the 2024 Act propose?

The 2024 Act makes big changes to the law on valuation as it relates to leasehold reform calculations (removing marriage value for leases under 80 years) and ‘capping’ for calculation purposes the value of any ground rent paid at 0.1% of the capital value of the property.

There are also the more functional changes in the enfranchisement space, such as changing the basis of statutory lease extensions to 990 years and allowing successive claims without any wait where a claim is withdrawn. The 2024 Act will also remove the two-year wait to qualify for a lease extension.  In addition, the Act will remove the ability of landlords to recover their costs in statutory claims. It also bans the creation of new leasehold houses and places restrictions on transfers out of leasehold land that might otherwise create these. There is also a new right for long leaseholders to buy out their ground rent.

In the field of property management, the 2024 Act also makes some big shifts by dealing with the following areas:

• Service charge and ground rent demands will need to be in a ‘universal’ prescribed format.
• Insurance commission will not be recoverable through the service charge, although the cost of the actions taken to place or arrange cover will be permitted.
• Regulations will cover the prompt provision of information in relation to sales information requests.
• Estate management charges payable in respect of freehold estates will be brought within the scope of the service charge legislation.
• There will be restrictions on the enforcement of rentcharges (a type of payment similar to ground rent that some freehold land is subject to).
• Amendments to the BSA 2022 to expand the definition of a ‘relevant defect’ to change this so that the cost of taking ‘relevant steps’ is included in the costs that may be restricted in recovery from a ‘qualifying lease’  

What will come into force and when?

A key question for the new Secretary of State for Housing will be to decide which of these other provisions to bring into force and when.

It is clear from the drafting of the 2024 Act that many of its provisions require detailed secondary legislation (statutory instruments) to bring its provisions into force. Some (but not all of these) may need to be referred to parliament.

In particular, the changes in the property management arena will require further detailed regulations and the valuation changes to the enfranchisement legislation cannot be brought into force without the ‘deferment rate’ and ‘capitalisation rate’ being set. This could be done by the Secretary of State but there might also be further consultation or discussion around this.

Predictions as to what will come into force first

It seems most likely that the changes that could be brought into force most quickly will be those relating to the abolition of the two-year rule and the ending of the restrictions against bringing successive claims along with the restriction on the ability of the landlord to recover costs. The reduction in the qualification criteria to 50% for mixed use buildings may also be an early part of any commencing provisions.

The more detailed changes relating to valuation will have to wait and the best ‘authority’ on this as the moment (the Baroness Scott of Bybrook letter given in answer to a parliamentary question in the Lords) suggested that the government would want to wait before bringing these in to give the market time to adjust. Of course, a new government may take an entirely different view.

How long will this be in practice? As the 2024 Act is on the statute books the new government could start work on commencement provisions in the first session of the new parliament and so these changes might come into effect towards the end of this calendar year or during the start of 2025.

Depending on who wins the election will determine the likely approach – the Conservatives have promised more of the same programme of reform to include capping ground rents for existing leases at £250 and phasing them out. Labour have indicated a willingness to adopt the fuller recommendations of the Law Commission’s report on enfranchisement. If this were to be done, then this would see a much larger piece of reforming legislation which would be a bigger parliamentary exercise. As to how far up the legislative agenda this might be remains to be seen.

What else might happen?

Other questions remain, such as whether freeholders will bring a challenge under the Human Rights legislation – which could delay or even change the course of implementation and there is the question of how much time should be given to allow the market to adjust. The first of these may see aspects of the Act held up by Court challenges, while the second could see a deliberate preference for a gradual implementation in order to give the market, including freeholders and pension funds, time to adjust to the new post-2024 Act normal.

There is also the possibility (as has happened with other legislation) that some of the Act’s provisions may take a long time to be brought into force or indeed perhaps never be enacted (an example being the ‘Right to Enfranchise Company’ under the 2002 Act), where once considered, the full detail of bringing these provisions into force was ‘shelved’ for a variety of reasons. However, it seems to me very unlikely indeed that none of the 2024 Act’s provisions will come into force, but this might just happen for some provisions where more detailed regulations are required or they may take a very long time to come into force.

And finally

The above is of course just speculation – although it seems logical that the more straightforward aspects of this legislation will come into force first. However, we will have to wait for the outcome of the election on 5^th July 2024 and the King’s Speech on 17^th July 2024 to find out what the new government has in store for the world of residential leasehold.

Mark Chick

2^nd July 2024