“Landmark Moment for Millions” – 6 Key Points to Take Away from the Leasehold and Freehold Reform Bill

April 2, 2024

By Siôn Fôn

Millions of people will be granted more rights, powers and protections over their homes, thanks to the Leasehold and Freehold Reform Bill that was introduced to Parliament on 27 November 2023.

The Bill forms part of the government’s Long-Term Plan for Housing and is described by UK Government ministers as a “landmark moment for millions of leaseholders across the country”. The Bill had its third reading in the House of Commons on 27 February 2024 and is now being considered by the House of Lords.

Our property disputes experts explore the key proposed changes and what they mean for leaseholders:

1. The Collective Enfranchisement and Right to Manage conditions

Collective “enfranchisement” is the right for a group of flat tenants with long leases to act together to buy the freehold of their building, together with any intermediate leasehold interests, on terms prescribed by the Leasehold Reform, Housing and Urban Development Act 1993. The acquisition is made by a nominee purchaser, appointed by the participating tenants.

A “Right to Manage” action is where, under the Leasehold Reform Act 2002, qualifying tenants of leasehold flats have the right collectively to take over the management of their building through a special, tenant-owned company, known as an “RTM company”. The management in this sense includes services, repairs, improvements and insurance of the building. Tenants do not need to demonstrate mismanagement to be entitled to exercise this right.

Currently, leaseholders are unable to take over the management of the site or buy the freehold in either action where more than 25% of the site’s floor space is used for commercial purposes. For example, a two-story building, where the ground floor is a shop and the first floor is a residential flat would be barred for the purposes of current legislation.

The Bill will extend the ability for leaseholders in sites with up to 50% commercial floor space to take over the management of the freehold. This will bring more buildings within scope of the Act where they are mixed-use buildings and more options for leaseholders.

It is important to note that the Bill has still not included the right to a freehold Right to Manage action, the rights above remain available only to leaseholders.

2. Transparency over service charges

The Bill will insert measures so that leaseholders receive better transparency over the costs they are being charged by their freeholder or managing agent. This would now need to be put into a standard format and available to the tenants and/or leaseholders for scrutiny and challenge (if appropriate).

This feeds into a leaseholder’s decision to initiate a Right to Manage or collective enfranchisement action.

3. Liability for landlord fees

The Bill shall remove the liability for the RTM Company, or a member of that company, to pay for the landlord’s legal fees (except where there are Court or Tribunal proceedings and the Court/Tribunal has the power to award costs).

The Tribunal will likely retain the power to order costs where the RTM Company has acted unreasonably.

4. Removal of marriage value

Currently when a lease is extended for a property and there is less than 80 years of the term remaining, the leasehold interest is more valuable to the freeholder. This is called ‘Marriage value’ and this increase the premium payable for the extension of the lease.
By abolishing ‘marriage value’ leaseholders will have more flexibility and less financial burdens to take into account when considering decisions relating to their home.

5. Standard extension terms

Current leaseholders of houses have the right to an extended term and to acquire the freehold interest in a property under the Leasehold Reform Act 1967. There are also the rights under the 1993 Act available; both pieces of legislation require that the leaseholder has lived in the property for 2 or more years. There are unjustified distinctions between the two that the Bill has sought to modernise.

When extending long leases, the standard extension terms are currently 50 years for houses, and 90 years for flats.

The Bill proposes to increase this to 990 years for houses and flats, meaning leaseholders are granted more security in their homes whilst removing the hassle and expense for future extensions. The Bill also removes the 2-year ownership requirement.

This substantial increase is part of the Secretary of State’s vision that a home is a ‘home’ and not someone else’s investment.

6. Dispute resolution

Lastly, the Bill seeks to replace the complex and laborious dispute resolution methods set out in the 1993 Act and other legislation, limiting the involvement of the Courts or Tribunal system. Where the Courts are required to intervene, in particular with enfranchisement matters, there will be restrictions on the cases that can be brought before the High Court.

The costs involved with challenging any matter at the moment can make such actions inaccessible for those who cannot afford to do so. This amendment to the Bill will encourage more tenants and leaseholders to challenge landlords.

At this stage, it is not clear whether all of the revisions in the Bill will be accepted and whether more will be added.

Our property disputes experts have experience in a variety of actions, and are able to assist both landlords and tenants in relation to the proposed reforms. To find out more, get in touch with one of our team.

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