It's all change with leasehold reform – the Leasehold and Freehold Reform Act 2024 has now been passed and achieved Royal Assent.
The progress of the Leasehold and Freehold Reform Bill was heavily expedited following the announcement of a snap election. It was the final bill to be passed during the UK pre-election legislative "wash up".
Despite the fact the bill has passed, it isn't in effect yet – and we don't know when it will be. For any leaseholder considering whether to extend their lease or purchase their freehold now or to wait, there are three key questions.
Question 1: Will the reform make a lease extension cheaper for me?
If your lease is below 80 years, or if you have a ground rent above 0.1% of the value of your property, it will likely be cheaper for you. Flats with short leases sell for less than flats with long leases once the lease is extended it will jump up in value.
This hypothetical profit that the leaseholder makes is called "Marriage Value". If your lease is below 80 years, you must split the Marriage Value with your freeholder. Once the legislation comes into force, any marriage value will no longer be shared with your freeholder.
Question 2: Could the reform make a lease extension more expensive?
If your lease is above 80 years or you have a low ground rent, the reforms could end up making a lease extension more expensive. When you extend your lease, your valuer and your freeholder's valuer are likely to spend time arguing about various parts of the calculation, including certain rates or percentages to be used.
The legislation doesn't say what these rates will be but will allow them to be set by the government, rather than negotiated between professionals.
Question 3: Can I wait for the reform to take effect?
The new act is not in effect and the current guidance from the Government suggests it will be 2025 to 2026. During the passage of the bill through the legislative process it was evident from comments made in both houses of parliament that the freehold community will litigate on some of the points of this bill – particularly around the abolition of marriage value and the capping of ground rent in the calculation. They will invariably argue that their human rights have been infringed by the legislation, and it is possible we will need to await the outcome of the legal challenges.
Equally, the bill was rushed through the legislative process at lightning pace and with limited scrutiny. It's likely that once the lawyers and valuers who will actually be working with this legislation have a chance to review the final act, they'll notice issues or errors that will need to be resolved through litigation or amended through more legislation.
In summary, there's still considerable ambiguity. Taking legal advice is key to help navigate such uncertainty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.