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New Leasehold and Freehold Reform Bill - Should I Wait?

The Leasehold and Freehold Reform Bill is on the horizon, and the Government aims to shake up the leasehold housing market. In the King’s Speech on 7 November 2023, they laid out the plan for this new law, which is intended to simplify and make more affordable the process of leaseholders buying their freehold, extending their leases, taking over management rights, and shielding them from hefty service charges.
The burning question for many of our clients contemplating lease extensions and freehold purchases is whether they should wait for this new law to come into effect.
 
Pretty much in the bag (as you can be given new law still needs to make its way through Parliament) is that they’re extending lease lengths from an additional 90 years to 990 years following service of a statutory claim. However in valuation terms this makes little difference.
 
It is good to see the proposal that the pesky 2-year ownership rule for lease extensions may be getting tossed out. This will mean no more pressure in having to assign the benefit of new lease claims on the sale of flats which can be stressful enough as it is.
 
More types of Buildings should be able to acquire their freeholds and take over the right to manage given mixed-use properties will now have a 50% non residential threshold to qualify, up from the current 25% threshold. Coincidently (or not) at my local coffee shop yesterday I witnessed a “freehold for sale” sign being put up for a property comprising a ground floor shop with two flats above. Such a building does not qualify presently as it comprises one third commercial (so more than 25%) but with less than 50% it should be enfranchisable under any new law.  
 
But the fundamental question for most leaseholders is – how will they make it “cheaper and easier” to extend leases or buy freeholds?
 
The recent headlines pre King’s Speech centred around the plan to ban “marriage value” which could significantly cut costs for leaseholders. Marriage Value was not expressly referred to in the speech but its abolishment was perhaps seen in an example provided in the briefing notes. The example indicated that the cost of a lease extension for a 76 year lease would reduce from £16,000 to £9,000, a hefty reduction perhaps explained by zero marriage value. However there was no detail provided as to how this reduction would be achieved.
 
It may be, for example, that that this reduction will be achieved with the Landlord paying its own legal and valuation costs rather than the abolishment of marriage value.  
 
Or perhaps the Government capping ground rents is their tactics to reduce costs when calculating lease extensions. Further in this respect and following the King’s Speech the Government launched its consultation on restricting ground rent for existing leases (i.e. all leases which were first signed before 30 June 2022), presenting various options.
 
Why would the Government avoid referring to marriage value expressly? It could be an innocent oversight and nothing to read into. Equally it may be due to rumours that should the Government pursue the abolishment of marriage value they would face litigation from Landlord bodies, something they would be keen to avoid no doubt. This already happened in James v. United Kingdom where the Government was taken to the European Court of Human Rights on the passing of the Leasehold Reform Act 1967. Therefore it may be that marriage value will not be abolished but the Government will reduce the aggregate premium/costs as above through Landlords paying their own costs, ground rent caps, or other means yet to be revealed.
 
As to the all important question of should you wait, this is perhaps summed up by Minister Maclean’s acknowledgement at an All-Party Parliamentary Group on the same day.  Minister Maclean said that the reforms were not going to satisfy everyone and gave a reminder that the Government only has a year of life left in it before facing the electorate. If the bill does not become law before Parliament is dissolved the next Government will need to consider whether they want to proceed with it.
 
Leaseholders waiting for the Leasehold and Freehold Reform Bill to become law should do so with these uncertainties in mind.
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About the Author
James Compton, Partner, Head of Enfranchisement

Specialises in: Real Estate Projects, Leasehold Property, Property Management, Company Commercial, Social Housing and Local Authority 

If you are looking for help and advice, or would like to talk to someone at Comptons, please contact James Compton in the Leasehold Property department at Comptons Solicitors LLP. (jc@comptons.co.uk / 020 7482 9513).