The Leasehold and Freehold Reform Act News
The Leasehold and Freehold Reform Act News
The Leasehold and Freehold Reform Act 2024 (LFRA) received Royal Assent on 24th May 2024.
It is important to emphasise LFRA is not yet in force. Some amendments to BSA (remediation orders, legal costs and definition of relevant steps) and restrictions on possession/granting lease for rent charge arrears will come into force on 24th July 2024. The remainder of the LFRA will come into force via regulations starting in stages after the Election. At this point, the timeline for implementation is 2025/26.
Brief summary of the main changes:
- New 990 year lease extension term replacing 90 years for flats and 50 years for houses.
- Abolishing 2 year ownership rule to qualify for a statutory lease extension/freehold purchase.
- Marriage value will no longer apply. Marriage value is an additional payment made to the freeholder where the lease term is below 80 years.
- Only in relation to the valuation of ground rents for lease extension: ground rents will be capped at 0.1% of the property value.
- Option to buy out ground rents without extending the lease.
- New Standard Valuation Method. Deferment Rates and Capitalisation Rates are to be set by regulations rather than negotiated between valuers.
- Ban on leasehold houses subject to exceptions such as retirement developments.
- Freehold and leaseholder pay their own legal and valuation costs. Provision likely to be subject to challenges in court by freeholders.
- Collective enfranchisement: Non-residential use floor space qualification increased from 25% to 50%. Limits on freeholders recovering their legal costs from leaseholders.
The anticipated £250 cap on ground rent for existing leases was not included in LFRA. Whether this will happen depends on the Election results and further legislation. Things Can Only Get Better!
In summary, clients with leases below 80 years should wait for LFRA to become law if they can. Leases over 80 years are more difficult to call as the lease extension may be more expensive depending on the Deferment and Capitalisation Rates. We have recommended valuers who can provide guidance to clients on whether to wait or proceed with a lease extension or freehold purchase. Practically speaking it may be the case that clients who are selling or re-mortgaging will not want to put off moving for potentially another few years waiting for the reforms to come into force
Please find the link to the Govemnet Link here
