For a long time, there has been consternation about leasehold properties in the UK. Of course, leasehold properties have their place. If you live in a house that has been converted into two separate properties, it makes sense that you share the cost of roof repairs, or the foundations.
Similarly, in a block of flats, there will be some unavoidable charges for shared spaces, such as repairs to the stairwell, or the outside of the building.
The reason leasehold properties have had a bad reputation in recent years is that some unscrupulous landlords have inserted onerous clauses into the lease. In some cases, ground rent may double every year, and service charges have no cap or limit. That leaves leaseholders exposed to eye-watering rising costs over time.
The new Leasehold and Freehold Reform Act 2024 seeks to redress the balance, and stamp out unfair practices. It gives homeowners greater protections, and more rights over their homes.
This is particularly welcome news in Bristol, where we see a high proportion of leasehold properties. In 2022 alone, there were 2,340 sales of leasehold properties in Bristol according to the Land Registry.
This new legislation should give more people confidence to buy leasehold properties, and help current leaseholders to have more control over their home, without excessive costs.
Landlords can no longer re-enter the property for default on the rent
Rentcharges vary, but often they are quite a small amount. Some are as little as £3-5 a year. However, if the leaseholder defaulted on the rent, and somehow forgot to pay, or wasn’t sure how to pay, the landlord immediately had the right to re-enter the property.
That’s a very radical resolution to a fairly minor problem, but it was permitted under section 121 of the Law of Property Act 1925.
The new Act takes this away, and the rentcharge owner cannot enforce their rentcharge by any of the statutory remedies in section 121 of the Law of Property Act 1925 anymore. The landlord must at least give 30 days’ written notice demanding payment before they take any further action.
That means that leaseholders no longer live in the threat of losing their homes for potentially small unpaid debts.
Lease extensions will be cheaper and more secure
When the number of the years left on the lease falls below 85 years, the property becomes more difficult to sell. Typically buyers want to see more years on the lease for greater security.
However, up until now, extending a lease has been an unusually expensive task, costing thousands in some cases. This was another oppressive quirk of the previous system.
Now, lease extensions in relation to houses will be a peppercorn rent. And the standard lease extension term is now 990 years for houses and flats. Previously it was 50 years for houses and 90 years for flats.
Leaseholders now have greater security over the ownership of their property without the hassle and expense of future lease extensions.
Service charges must be transparent
Service charges are usually borne by owners of flats in a building. They have their place, and it means that everybody in the building shares the cost of maintenance of the building and communal spaces.
But some landlords have capitalised on service charges, and started profiteering on them by charging excessive amounts above and beyond what was necessary.
With the new legislation comes greater transparency over service charges. Freeholders or managing agents will now have to issue bills in a standardised format. There will be itemised costs and no opaque charges. This means that the costs can be scrutinised and challenged more easily.
Leaseholders can challenge the landlord without facing excessive legal costs
When it comes to challenging unreasonable charges and poor practice, leaseholders can now apply to the First Tier Tribunal more cheaply. That’s because there is no longer a presumption that the leaseholder will pay the Landlord’s costs of litigation.
Previously, this was a huge deterrent for leaseholders to challenge their service charges, but now the path to fairer charges should be more straightforward.
All new builds will be freehold (with a few exceptions)
Under the new Act, all new build houses in England and Wales will be freehold from the outset (other than in exceptional circumstances).
More protections to come
The Leasehold and Freehold Reform Act 2024 was enacted on 24 May 2024. Some of the provisions came into force on 24 July 2024. But the Act was rushed through before Parliament was dissolved for the General Election on 5 July 2024. Not all of the proposed provisions were in the rushed bill.
The new Labour Government has committed to bringing the rest of the Act into force, but it will need to do this by statutory instruments, which may not be enforced until 2025 / 2026.
There has been some criticism of the current legislation that it is “watered down” and “sub-optimal.” Notably, there is not yet a cap on ground rents for existing leaseholders.
However, all-in-all this is a positive step forward for leaseholders, and should give leaseholders more confidence and security in their homes.