The changing leasehold landscape

By Jo Ironside, Partner (Leasehold Enfranchisement) at Mayo Wynne Baxter.

Reforming leasehold law has been on the political agenda for the best part of the last decade and the Law Commission made numerous recommendations for change back in 2020. Many of the recommendations were reflected in the Leasehold and Freehold Reform Act 2024 which was passed last year but is not yet in effect. The recommendations include:

1. Reducing the price and costs payable to the landlord where a leaseholder exercises their right to extend their lease or purchase the freehold.

The Act seeks to reduce the costs payable by a leaseholder in various ways including:

• Changing the way that the premiums are calculated including the removal of marriage value.

• No longer enabling landlords to recover their costs from the leaseholder – each party will bear their own costs in the transaction.

2. Enabling flat owners to buy the freehold of mixed use premises or take over its management where up to 50% of the building is commercial space rather than the current limit of 25%.

This will mean that more buildings will be eligible for enfranchisement where perhaps landlords had not anticipated that they would be.

3. Increasing the number of years granted by lease extensions to 990 years with no ground rent payable, in place of shorter extensions of 90 or 50 years under the current law.

Leaseholders will therefore only have to go through the process of extending once rather than numerous times over the life of the lease.

4. Rationalising where disputes are heard so that they are determined by a tribunal rather than a court.

This is a welcome change. It is well known amongst property practitioners that a case that is referred to the Property Tribunal for adjudication will be dealt with more effectively then if it ends up in the County Court. This is for a number of reasons but not least because the panel of judges at the tribunal likely have a wealth of property experience and so understand the issues at hand easily and also because the tribunal appears to have less of a backlog of cases to be dealt with.

5. Creating a new right for leaseholders with long leases to ‘buy out’ the ground rent under their lease rather than having to resort to a lease extension.

Currently, leaseholders do not have a right to alter the ground rents in their lease even where they are deemed onerous by lenders and buyers. If the landlord will not agree to alter them then their only recourse is to exercise their right to a statutory lease extension even where they don’t need additional years as this brings their ground rent down to a peppercorn. This mechanism should provide a less expensive means to resolving a rent issue for leaseholders.

6. Removing the rule that requires two years of ownership before exercising your right to a lease extension.

This rule was brought in at the end of January 2025 and whilst removing this arbitrary hindrance to leaseholders demonstrates the government is proceeding with its planned reforms.

Further reforms

In the King’s Speech 2024 the government committed to publish a further draft Leasehold and Commonhold Reform Bill which would:

• Enact further Law Commission recommendations to strengthen leaseholders rights to extend their lease, buy the freehold and manage their building

• Reinvigorate commonhold as an alternative to leasehold

• Regulate ground rents

• Remove forfeiture as a remedy for defaulting on the terms of the lease

• Grant the rights of freehold homeowners where their houses are situated on estates

The government have said that they will be consulting in 2025 on:

• options to restrict the sale of new leasehold flats and converting existing leaseholds to commonhold

• the regulation of property managing agents

• service charges and legal costs

• Valuation rates used to calculate the cost of enfranchisement premiums

With this commitment to further reforms the landscape of leasehold law appears to be an evolving one.

What does this mean for leaseholders and landlords?

For the time being – lots of uncertainty!

Leaseholders will no doubt be relieved that long overdue changes appear to be in the pipeline but landlords in turn will likely feel persecuted by legislation intended to diminish their investments with many choosing to divest themselves of their assets now before the landscape turns further against them.

Seven judicial review claims have been made challenging the provisions of the Act on the basis that they are contrary to the European Convention on Human Rights and amount to an expropriation of the value of the landowner’s property without any or adequate compensation. The outcome of the claims are yet to be determined partly because it is hard to assess the impact of the legislation without the secondary legislation that enacts it being available for review.

Having said all that, the general advice to those who need a lease extension or want to buy their freehold:

• If your lease length is down to 80-82 years – it is almost certainly advisable to extend. There is no guarantee that it will be cheaper in the future for you to extend.

• If you need to remortgage or move and the lease term is an issue – extend.

• If your lease has over 82 years – might be worth waiting as the cost could actually go up for you in future rather than reduce.

• If your ground rent is above 0.1% of your property value or rises that high – consider waiting for the legislation as such ground rents might be capped

• If your lease is under 80 years – wait if you can as the abolition of marriage value is likely to benefit you.

If you need specialist advice to guide you through this changing landscape – do get in touch with our leasehold enfranchisement team who will be able to help.

www.mayowynnebaxter.co.uk