Leasehold and Freehold Reform Bill – Guide, Advantages & Key Dates

On 27 November 2023, the UK government unveiled the Leasehold and Freehold Reform Bill, marking a pivotal moment for England’s property landscape. With its progression through the House of Commons, including a Second Reading on 11 December 2023 and completion of the Committee Stage by 30 January 2024, the Bill is on its way to transforming the leasehold system.

The Leasehold and Freehold Reform Bill has now become law and is known as The Leasehold and Freehold Reform Act. This updated guide will discuss how the Bill is on its way to transforming the leasehold system.

What was the Leasehold and Freehold Reform Bill?

Described by the Department for Levelling Up as “the most significant reforms to the leasehold system for a generation,” this legislation aims to bolster the rights of the 5 million leaseholders across England, addressing critical issues for the 1.5 million leasehold houses and the broader Private Rented Sector (PRS), where 38% of properties—or 1.8 million of the 4.9 million in the PRS—are leasehold. 

The Bill was enacted in March 2024, with it coming into effect by 24th July 2024, it promises comprehensive changes, including reforms on lease extensions, enfranchisement, service charges, and ground rent, signalling a major shift for freeholders and leaseholders alike. 

This guide delves into the key aspects of the Leasehold and Freehold Reform Bill, outlining the significant changes and what they mean for homeowners and the property sector in England. 

When was the Leasehold and Freehold Bill be passed?

The Leasehold and Freehold Reform Act 2024 received Royal Assent on Friday, May 24, during the final day of the ‘wash up’ period before the UK’s general election. This Act, which impacts property in England and Wales, was the last bill to be passed in this period.

Leasehold and Freehold Reform Bill Update: A Timeline

2023

Unlike the Renters Reform Bill, which saw a 5-month gap from introduction to Second Reading, the Leasehold Reform Bill moved to its Second Reading on 11 December 2023, just three weeks following its introduction to the House of Commons. This rapid progression underscores the urgency and importance placed on leasehold reform by the government. 

2024

As of the end of January 2024, the Committee Stage of the Bill was completed, setting the stage for the Report Stage, anticipated to occur before the end of February. This pace reflected a determined effort to address the complexities of the leasehold system promptly. 

During the Second Reading debate, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, passionately critiqued the current state of freeholds, suggesting they strayed far from their intended role within the capitalist system and instead became assets for foreign entities to exploit UK homeowners. This statement sparked a notable reaction from Angela Rayner, Deputy Leader of the Labour Party, who offered Gove a back-handed compliment for his frank assessment.

What is the next step for the Leasehold and Freehold Reform Bill?

As of June 2024, Parliament was officially dissolved on May 30, and following the July election, there will be the summer recess. Labour has indicated that if they win the election, they might legislate further on the mentioned issues. Consequently, while the Act provides some clarity, uncertainty persists regarding the timeline and potential further reforms.

What are the advantages of the Leasehold & Freehold Reform Bill?

1. Leaseholders receive extended lease terms for both flats and houses 

Clauses 7 and 8 of the Bill provide a pathway for eligible leaseholders of both flats and houses to secure a 990-year lease extension at a nominal ground rent, thanks to a revised valuation method that benefits leaseholders more. This improvement stems from the Bill’s elimination of the “marriage value” payment requirement and the limitation of future ground rent’s impact on the valuation to 0.1% of the freehold’s value. Though not exactly nominal, this adjustment is a positive development for leaseholders. 

Previously, lease extensions were capped at 90 years for flats and 50 years for houses. The Bill aligns the treatment of both types of properties. 

Furthermore, Clause 1 abolishes the two-year ownership requirement for flat leaseholders wishing to extend their lease. It also allows house leaseholders to either extend their lease or purchase their freehold immediately upon acquiring the leasehold property. 

2. Leaseholders can buy the freehold when purchasing the house 

The Bill allows house leaseholders to purchase the freehold of their house immediately upon acquisition, eliminating the two-year waiting period mandated by the Leasehold Reform Act 1967. 

3. Revised Valuation for Collective Enfranchisement 

The Bill introduces specific changes to the valuation method for leaseholders looking to jointly purchase the freehold. Similar to lease extension reforms, the updated valuation eliminates the marriage value requirement and limits the consideration of future ground rents to 0.1% of the freehold value, making freehold acquisition more affordable for leaseholders. 

4. Expanded Eligibility for Mixed-Use Buildings 

The Bill raises the threshold for collective enfranchisement in mixed-use buildings from 25% to 50% non-residential space. This adjustment allows leaseholders in buildings with a significant commercial component more opportunity to collectively buy the freehold. 

5. Enhanced Service Charge Transparency 

Addressing a common concern among leaseholders, the Bill mandates greater clarity in how service charges are calculated and communicated by freeholders or their management companies. It prescribes a standardised format for service charge invoices. It necessitates regular provision of detailed financial and non-financial information, including insurance details and annual reports, to empower leaseholders to dispute unreasonable charges. 

6. Estate Charge Transparency and Challenge Rights 

The Bill extends rights regarding the transparency and reasonableness of estate charges to freehold house owners, akin to the rights afforded to leaseholders for service charges. This includes the ability to contest these charges at a Tribunal.  

7. Reform of Building Insurance Costs 

Highlighting the misuse of insurance commissions by freeholders, the Bill restricts managing agents to transparent administration fees for building insurance, eliminating commission earnings from arranging building insurance for leaseholders.  

8. Ban on Leasehold House Sales 

The proposed Bill did not include a ban on the sale of leasehold houses. However, the Bill has now released that the sale of new leasehold houses is now banned, except in exceptional circumstances. This ensures that every new house in England and Wales will be freehold.

Here’s how the Department for Levelling UP, Housing and Communities described the change:

It (the Act) will further ban the sale of new leasehold houses other than in exceptional circumstances, end excessive buildings insurance commissions for freeholders and managing agents, and scrap the requirement for a new leaseholder to have owned their house or flat for two years before they can buy or extend their lease.

What doesn’t the Leasehold Reform Bill address (so far)? 

Ground Rent Consultation 

Following a consultation launched on 9 November 2023 to explore methods for capping ground rents in existing leases, the government was intending to make it easier for leaseholders to extend their leases, purchase their freeholds, and take over management of their buildings. However, the proposal to cap ground rents for existing leaseholders, a crucial element of the reforms, has now been withdrawn.

Frequently Asked Questions (FAQs) about the Leasehold and Freehold Bill 2023

What was the purpose of the Leasehold and Freehold Reform Bill?

The bill aimed to reform the leasehold system, enhancing rights and benefits for leaseholders across England. 

When was the Leasehold and Freehold Reform Bill enacted?

The Leasehold and Freehold Reform Act 2024 received Royal Assent on Friday 24 May 2024.

How does the Leasehold and Freehold Reform Bill affect lease extensions and ground rent?

It introduces the possibility of a 990-year lease extension at a nominal ground rent, among other reforms.