Leasehold Reform – Where are we now?

Leasehold Reform – Where are we now?

Leasehold reform has been in discussion for many years, promising leaseholders a fairer deal when it comes to extending their leases or buying their freeholds. The Leasehold and Freehold Reform Act 2024 was passed just before the last general election, but much of it has yet to come into force. And with legal challenges and government delays, progress is proving to be frustratingly slow.

This has also been complicated by a recent whitepaper published by the Government on 3^rd March announcing their intention to move to away from a freehold system for leaseholders and adopt a commonhold system where homeowners will own part of the building in which they live.  This is popular in many other countries around the world and can help leaseholders to manage the cost of increasingly expensive service charges.  A draft Leasehold and Commonhold Reform Bill – including the detail of how the new system would work – will be published later this year and we will share details with you as they are announced.

To help keep you up to speed with where we are now, read on for our easy to digest summary.

First, let’s confirm the following points have already taken effect:

1. Removal of the Two-Year Ownership Rule – Previously, leaseholders had to wait two years from when they purchased a property before applying for an extension. As of 31st January 2025, this is no longer the case.
2. Ban on New Leasehold Houses:  The Act prohibits the sale of new leasehold houses, aiming to prevent developers from exploiting homebuyers through ground rents. There are exceptions to this ban, such as retirement complexes, where leasehold sales may still be permitted.

3. Right to Manage costs to be borne by the freeholder/landlord – The financial responsibilities associated with Right to Manage (RTM) claims have been restructured so that freeholders/landlords will bear their own costs and are restricted from passing these onto the leaseholders through service charges or other means. Leaseholders remain responsible for their own costs.
4. More Leaseholders Can Take Control – If you live in a mixed-use building with both residential and commercial spaces, you may now have a better chance of taking over the management. Previously, leaseholders could only apply if the building was no more than 25% commercial—this has now increased to 50%.
5. Faster and Fairer Legal Processes – Some disputes can no longer go straight to the High Court, meaning cases will be resolved in a more straightforward and cost-effective way. Freeholders/landlords will also have fewer opportunities to claim extra legal costs from leaseholders in Right to Manage disputes.

This leaves a list of pending points which have yet to be implemented (and may never be):

1. Abolition of Marriage Value – Leaseholders pay a much higher premium when their lease drops below 80 years due to a calculation known as ‘Marriage Value’. The reform aims to take away the freeholder/landlords rights to claim marriage value in lease extension and enfranchisement claims, making lease extensions cheaper.
2. Capped Ground Rents (for lease extension calculations) – When buying a freehold or extending a lease, leaseholders have to compensate freeholders for lost ground rent. The new rules aim to cap this calculation, ensuring it doesn’t exceed 0.1% of the property’s value when calculating the freeholder/landlords loss.  Landlords are still permitted to collect ground rent specified within a lease even if it exceeds the 0.1% limit.
3. Freeholders/landlords Cover Their Own Costs – Currently, leaseholders foot the bill for both their own and their freeholder/landlords legal and valuation costs when extending a lease. The reform aims to shift this burden onto the freeholders/landlords.
4. Simplified Lease Extension Calculations – The government is looking to standardise valuation formulas, making it easier to calculate lease extension costs. However, if these formulas favour freeholders/landlords, costs could actually rise.
5. 990-Year Lease Extensions – Instead of extending by 90 years, leaseholders will be able to add 990 years to their lease, ensuring long-term security.

Why the delays?

While the removal of the two-year ownership rule is a small victory for leaseholders, two significant setbacks are delaying wider reforms.

1. Judicial Review by Freeholders – Six freeholder groups have challenged the legality of the reforms, arguing that capping ground rents and removing Marriage Value infringe on their human rights. The High Court is set to hear the case in July 2025, and if the ruling goes against freeholders, they are likely to appeal to the Supreme Court. This legal battle could significantly delay or even alter the implementation of the reforms.
2. Government Delays on Valuation Rules – In November, the government announced that it wouldn’t consult on the new valuation rates until summer 2025. Without this consultation, key aspects of the reform cannot be implemented.

While leasehold reform is still on the horizon, its progress is slow and uncertain. For landlords and leaseholders alike, staying informed and planning ahead is key.  As always, should you have any questions, please do contact one of the Pace team on 01702 445600 or email [email protected].  We are also supported by Peter Rudd, an experienced valuer for Easy Lease Extensions and Robert Plant who is a Partner in the Commercial Property department at Tolhurst Fisher.  If we are unable to answer your question, we will be happy to introduce you to either Peter or Robert.