Leasehold Reform Act – what next for the housing market?

The Leasehold and Freehold Reform Act giving homeowners more rights, power and protections became law on 24 May 2024.

The Act, which has been a long time coming, will provide huge relief to many leasehold owners, although removal of ground rent for existing leaseholders or a cap at £250 have both failed to make an appearance. However, all is not lost and we can look at this as a positive start.

The Act will benefit leaseholders by providing greater transparency over their service charges. Under the new law, freeholders or managing agents must issue bills in a standardised format that can be more easily scrutinised and challenged.

Arguably the most attractive change surrounds extending the term of the lease. This has been made far easier and more simplified, removing the requirement for a homeowner to have owned their property for two years before they can look to extend their lease or buy the freehold.

Further benefits are to include:

• Scrapping the presumption that leaseholders will have to pay their freeholders’ legal costs when challenging unfair service charges
• A requirement for buildings insurance commissions to be transparent
• New houses will always be freehold other than in exceptional circumstances.

Why is this important to the property market?

The property market has been hugely affected in the past few years with a succession of issues making purchasing leasehold properties a less attractive option for home owners and lenders. This latest Act, whilst not perfect, will change the way leasehold properties are viewed as an option for first time buyers and investment buyers.

For sellers, this will encourage a more positive outlook when placing their property on the market, in some cases, negating the need to apply for a Lease extension prior to sale. For buyers, this will provide an extra layer of comfort for those who are looking to purchase leasehold properties with a lease containing minimal years to run, in the knowledge they can apply to have it extended without waiting two years.

Leases will be extended to the standard lease extension term of 990 years negating further expense in the future for further extensions.

We shall now see how the new government assesses the ongoing situation with leasehold properties and whether further urgent changes will be on the ‘to do’ list alongside their housing recovery plan!