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the basis of statutory lease extensions to 990 years and allowing successive claims without any wait where a claim is withdrawn.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

Well who would have thought this time last week that we would know when the election was? A sudden move by Mr Sunak throws parliament into a final splurge of business and in the ‘wash up’ that we have all learnt a lot more about in the last 24/48 hours we have the birth of the Leasehold and Freehold Reform Act 2024. No longer a bill.. so it really is ‘welcome to the new world of leasehold reform.’

So the next question has to be ‘when does all this come into force?’ – Well the Act’s commencement provisions state that the provisions relating to rentcharges, the costs shifting in tribunal cases on service charge and the BSA amendments come into force two months after the Act is passed into law. So these provisions would seem to be in force as of 24th July 2024. As to the other ‘meatier’ parts of the Act, these are subject to commencement under statutory instruments (‘SI’) – See section 123(3). These SIs need to be made by the Secretary of State and we also know that in order to be effective the valuation changes will need various matters such as the relevant rates to be prescribed. These will need to be in place before the valuation changes can be enacted.

The Bill had only got to the report stage form the Select Committee in the Lords and we will need to pore over the finer detail of the version that has been enacted. However all in all, perhaps not that bad for a Friday afternoon’s work before the bank holiday weekend?

Let’s hope that this model does not suffer from any production line issues that have been known to plague other products made at a similar time.. we await the detail of commencement with interest. 

Mark Chick

24th May 2024

So, there we have it – The Sunday Times indicating that the outcome of the ground rent consultation will be a £250 cap on all existing ground rents and a planned ‘phasing out’ of current ground rents.

Certainly, previous indications from the Sunday Times have been accurate in the past – and so we should probably consider this to be more than likely to be an ‘accurate’ picture of what government has planned.  

The article says that ‘the government will now seek to phase out ground rents for current leaseholds over a period spanning at least 20 years…’ and that ‘during this period a £250 cap on ground rents will also be implemented.’

Taking these two points in turn – phasing out – does this mean that there will be a ‘sunset clause’ for all ground rents – meaning that all current ground rents will fall to zero in say 20 years’ time? And secondly during that period – i.e. from implementation, that all ground rents will be capped at £250.

If that is the case does the £250 cap apply everywhere? Or will there be a differential for say, Central London – mirroring the Housing Act 1988 provisions? 

What does this mean in terms of ‘cheaper and easier’? – I have to say that the article is slightly misleading when it says: ‘But it would make extending the lease term or buying the freehold more expensive for the leaseholder, because they would have to compensate the freeholder for income lost.’

Clearly not implementing an immediate shift down to zero ground rent would make it more expensive to extend or buy the freehold, but we have to bear in mind that a complete ban is not the current position. Therefore even a shift down to £250 would provide a saving for all those whose rents are over that amount and in addition, the prospect of a sunset date (if this is correct) would also reduce the amount payable as the ground rent stream would only last for the next 20 years (or whatever the ‘phase out’ period might be). 

This also ignores the fact that in the draft Leasehold and Freehold Reform Bill that the ground rent is assumed not to exceed 0.1% of the capital value of the property. Another factor which on its own would make it ‘cheaper’ to extend or buy the freehold.

Clearly some further clarification is needed, and we will hear this week, just as the Lords are debating the Bill and we can therefore no doubt expect an amendment dealing with these points. We look forward to the formal outcome of the Ground Rent Consultation and the rationale behind this thinking. 

It will be interesting to see how this sits in comparison with the Human Rights points that have been discussed in relation to this matter. These considerations are after all as far as I can see, what has prevented a complete ban on existing ground rents being contemplated – because of the potential need to pay compensation in such a case and, I can only assume therefore that the view that is being taken is that the introduction of a fixed cap is more of a ‘control of use’ than a ‘deprivation’ under the ECHR and therefore not a breach of the convention rights of the freeholder. Presumably, any phasing out over time is intended to be seen in the same way. 

I await the formal outcome of the DLUHC Consultation and the Lords debate on the Bill tomorrow with interest.

Mark Chick

21.4.2024