Leasehold and Freehold Reform Act 2024: Reform across the living sector

The Leasehold and Freehold Reform Act (LAFRA) was enacted on 24 May 2024. It’s intended to improve the rights of residential long leaseholders in England and Wales. Following announcement of the General Election, the legislation was passed shortly before Parliament was dissolved. That meant it was enacted before all elements could be included. One aspect, which had been heralded as a flagship reform, is notably absent: the proposal to abolish or cap ground rents for existing leaseholders. Landlords and investors are likely to be relieved that ground rents for existing leaseholds will remain unchanged for now [1].

The provisions regulating enforcement of rentcharges (see below) will come into force on 24 July 2024. The remaining provisions referred to below will be brought into force by Statutory Regulations, on dates to be appointed.

Key provisions of the LAFRA include:

• An increase in the standard lease extension term for houses and flats to 990 years (up from 90 years for flats and 50 years for houses). In addition, lease extensions in relation to houses will be at a peppercorn rent, which will bring them in line with lease extensions in relation to flats, which are already granted at a peppercorn.
• The ban of leasehold tenure on the sale of newly built houses (with some exceptions).
• The ability for leaseholders to extend their lease or buy their freehold immediately upon acquiring the property (rather than waiting until they’ve owned the property for two years).
• Removal of marriage value from the cost calculation for leasehold enfranchisement [2].
• An increase in the percentage of non-residential floorspace (from 25% to 50%) which can be present in mixed-use buildings before residential tenants can collectively buy their freehold or take over management of their building.
• The LTA 1985 will be amended to include new protections for tenants. Some of these new provisions will apply to fixed service charges as well as variable service charges.
• A new prescribed form of service charge demand, and also a requirement for landlords to serve future demand notices where demands are in relation to costs incurred more than 18 months beforehand.
• The requirement of administration charge schedules, setting out the amount of the administration charges or how they are calculated.
• Similar rights to challenge unreasonable estate charges for freehold owners in managed estates, equivalent to those applicable to residential long leaseholders.
• The ban on commissions made on insurance by freeholders and/or managing agents and increased transparency in respect of fees for placing insurance.
• Landlords will be required to obtain a court or tribunal order before passing on litigation costs to either individual tenants as an administrative charge or to all tenants as part of a variable service charge.
• Tenants will be given a new right, by an implied term in their leases, to claim litigation costs from landlords in connection with relevant proceedings relating to their leases. “Relevant proceedings” to be defined by Statutory Regulations.
• The requirement for landlords or estate managers to belong to an approved redress scheme.
• Codes of management practice, which residential leasehold property managers are required to follow, will be extended to cover estate managers. The English and Welsh governments will be able to publish a Code of Management Practice for freehold estates.
• A new enforcement regime is introduced in relation to the recovery of regulated rentcharge arrears (the rentcharge owner cannot take any action to require payment of the arrears unless the rentcharge owner has served the landowner with 30 days’ written notice demanding payment, accompanied by prescribed information).
• A rent charge owner cannot enforce their rentcharge by any of the statutory remedies contained in section 121 of the Law of Property Act 1925. The rentcharge owner will not be able to enforce by entry into possession or by granting a lease to trustees (this provision comes into force on 24 July 2024).

The RICS has published a fairly detailed response to the LAFRA. It largely welcomes the legislation, but considers that some concerns remain. In particular: lifetime leases and the lack of guaranteed protection for leaseholders in the future; the impact on building safety, such as protections for current leaseholders against potential significant remediation cost contributions on forming a commonhold or resident management company; lack of regulation of agents; and the issue of rising service charges.

Finally, as explained above, most of the provisions of the LAFRA all require implementation via secondary legislation. That can only be done by the next government and so, despite the headlines, it will broadly remain business as usual for landlords, tenants, investors, agents and block managers for now. Walker Morris will continue to report on developments.

Block management expertise

Walker Morris’ dedicated Housing Management & Litigation team and block management experts specialise in advising landlords, management companies, managing agents and leaseholders in relation to all aspects of residential leasehold law, practice and block management.

For further advice, information or training on any aspect of housing and/or block management, please contact Karl Anders, Pawan Pandit or Asia Munir.

[1] Although there will be the right for qualifying tenants whose existing lease has at least 150 years of its term remaining to vary their leases to provide for a peppercorn rent in place of the existing rent, on payment of a premium, and subject to certain exceptions.

[2] Previously, when a tenant wished to extend its lease or purchase the freehold, ‘marriage value’ was included in the cost it was required to pay. Marriage value is the difference between the higher value of the property if it was in single ownership and the lower value of the property when owned separately by both a landlord and a tenant/leaseholder.