Leasehold and Freehold Reform Act 2024 (LAFRA) becomes law ahead of the General Election

The Leasehold Reform Bill became law on the 24 May as part of the 'wash up' in the final Parliamentary session under the current Government. This is the third piece of important legislation in the leasehold arena since the Building Safety Act 2022 (BSA) and the Leasehold Reform (Ground Rent) Act 2022. Arguably it is the most important and wide reaching legislation since the Commonhold and Leasehold Reform Act 2002.

LAFRA follows the Law Commission consultation which began in 2018 where Professor Nick Hopkins pledged that leasehold reform proposals would provide “a better deal for leaseholders” and would make the process of lease extensions and enfranchisements easier, quicker and more cost-effective for leaseholders.  

Not yet. LAFRA sets out commencement provisions in s123 which state that the leasehold reforms will come into force following secondary legislation. Therefore, at this stage we will need to watch this space as to when those provisions will come into effect. What we do know is some of the other provisions relating to rent charges and various amendments to the BSA will most likely come into force on the 24 July 2024. 

1. 90 year lease extensions of flats will be scrapped, and a new 990 year right at a peppercorn rent has been introduced. This will also apply to houses.
2.  The two year ownership rule will be removed, which means there will be no need to worry about assigning the benefit of lease extension (s42) notices to a buyer when selling a flat. This will pave the way for many more lease extension claims.
3. Marriage value for leases below 80 years will be abolished on the date a claim is made. This is one of the more controversial provisions as it may result in lower premiums. However, LAFRA will also be prescribing deferment rates and capitalisation rates which are used in calculating the premiums payable. The current deferment rates are broadly 5% for flats and 4.75% for houses). If the prescribed rates are lower this will lead to an increase in premiums. Therefore, if you are considering waiting for commencement you must seek professional valuation advice to help weigh up your options. 
4. For the purpose of valuations ground rents will be capped at 0.1% of the value of the property. This will result in savings for leaseholders with high ground rents. 
5. Currently, where a building has more than 25% in non-residential use such as office space it will not qualify for the right to buy the freehold (collective enfranchisement) or the Right to Manage. The new legislation will be upping this to 50% which will increase the number of buildings qualifying for these rights. 
6. As it stands, landlords are entitled to recover certain reasonable costs when handling collective enfranchisement/lease extension claims. Where costs are disputed either party can make an application to a First-Tier Tribunal (FTT) for a determination.  LAFRA will significantly reduce the scope for landlords to recover its costs which will broadly only be allowed in low value claims.
7. A ban on the granting of leasehold houses save for in exceptional circumstances will be introduced. 

Michael Gove had made promises to ban ground rents altogether which were recently diluted down to potentially introducing a cap on ground rents instead. A £250 cap or 0.1% of the market value were two of the proposals considered.  This has not formed part of the new legislation so it remains to be seen if any future government tackles it with further legislation. 

That is the million dollar question. The legislation sets out a number of proposals which will on the one hand help leaseholders and result in lower premiums, such as abolishing marriage value on leases below 80 years and capping ground rents for calculating premiums. However, the position will remain uncertain until we have clearer information on the prescribed deferment and capitalisation rate, meaning we cannot say with any certainty right now if premiums will be lower. 

If you have a lease which is approaching 80 years you would be wise to seek professional valuation advice on what the premium would look like now versus what it may look like when the valuation provisions come into force. It is risky to wait without advice. If you have very long leases and no concerns with marriage value there may be more risk in waiting if the prescribed rates are lower and result in higher premiums. If you are close to 80 years or already below 80 years then the new provisions may benefit you as there will be no marriage value. Either way, it will depend on your specific circumstances.

In this instance, you can simply continue and pay the premium and landlord’s costs based on the legislation as it is now. Alternatively you could withdraw from the process and see if any changes are on the horizon. If you do decide to withdraw you will need to pay the landlord’s reasonable costs up to that point, which will definitely be higher than under the new rules. 

There is a lot more to say on this matter and it is difficult to distil it all in one piece. Needless to say, we are happy to have a conversation if you need some guidance and will keep you updated via our website and social media channels.