The leasehold system in the UK has been subject to some unfavourable press for some time now. The National Leasehold Survey conducted in 2016 by The Leasehold Advisory Service, in conjunction with a firm of solicitors, delivered alarming findings. According to the survey over half of respondents regretted buying a leasehold property with two-thirds being dissatisfied with the service levels received from their managing agents. It is with this backdrop, the need for reform seemed crucial.
The leasehold reform
The Leasehold and Freehold Reform Act received the royal assent on 24 May 2024. Before we see the benefits, however, extensive secondary legislation is needed. Given the change in government following the general election, it is difficult to predict when this may take place. Although, the Act has been criticized for not going far enough in some areas, such as failing to introduce the ground rent cap or the ban on forfeiture of residential leases, there are various improvements that were covered:
- lease extensions – the standard extension has been increased from 50 years in houses and 90 years in flats to 990 years, giving the leaseholders much needed security of ownership with added benefits of cost savings as any owner would not be required to extend their lease more than once. The requirement to own a leasehold for two years before applying for an extension has also been removed, meaning that the extension can be sought straight after the property purchase. Lastly, 'marriage value', which represents the increase in market value of a property after completion of a lease extension, has been abolished for the purposes of the premium calculation. This will greatly reduce a premium payable for any extension of a lease with the term of less than 80 years.
- service charge – accounts and invoices are to be provided in a standardised form enabling the leaseholders to assess and challenge (should it be necessary!) the charges in a much easier way, introducing more transparency in the way service charges are managed
- insurance – the Act introduces an obligation to provide leaseholders with insurance details to include any fees for placing the insurance, whilst also banning commissions made by freehold owners and/or managing agents
the Act introduces an obligation to provide leaseholders with insurance details to include any fees for placing the insurance.
- leasehold/building management – the new
legislation is going to:
- make it simpler and cost effective for leaseholders to acquire a share of their freehold
- extend the requirement for freeholders to take part in a redress scheme (in the same way managing agents are obliged to already) which should assist in challenging any poor practices
- provide for a maximum fee and time limit to be observed when providing the buying and/or selling home information
- remove the presumption that a leaseholder is liable to pay landlord's legal fees incurred in challenging the landlord's service charge practices, as well as to make the tribunal process cheaper and more simplified to allow for greater access by leaseholders
- simplify the process for leaseholders taking over management of their building
- increase the number of mixed-use properties eligible for the right to purchase freehold or the Right to Manage by increasing the commercial element of the floor area being allowed to 50% of the total floor space
As mentioned above, the Act has addressed many areas of concern for leaseholders and hopefully with the secondary legislation following soon, we may see positive changes in the sector. However, there are many areas that are not covered by the new legislation: the Royal Institution of Chartered Surveyors, whilst providing thorough commentary on the Act, has renewed its calls for introducing regulation of managing agents. It also highlighted that one of the biggest concerns of recent years, which is rising service charge costs, is not being dealt with by the Act. It seems that there is yet much more work to be done but these are positive steps.
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