Extending your lease or buying your freehold has just become cheaper and easier

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The Leasehold and Freehold Reform Act 2024 has become law on Friday just before Parliament was dissolved before the general election on 4th July.

The Act will bring about several favourable changes for homeowners. Some of these changes include significant benefits for leaseholders wishing to extend their leases or buy their freeholds to increase the value of their properties including for any upcoming sales or remortgages.

The changes also bring about certainty for homeowners where the market was unsure about when and if the proposed changes would be made and what they would be. This article discusses some of the key changes that affect leaseholders wishing to extend their leases or buy their freeholds known as “Collective Enfranchisement.”

Lease Extensions

Leaseholders will be able to extend their leases up to 990 years whereas before they only had a right to extend their leases to 90 years or 50 years for leasehold houses. This means that these leaseholders once they have extended their leases will have a longer more valuable lease which they will not have to be concerned to extend again in the future either for themselves or their loved ones to whom they leave their Property.

The Government also removed the requirement for leaseholders to have owned their properties for two years before they have the right to extend their leases. The two-year ownership requirement caused a problem for parties wishing to sell their properties with short leases but without the funds to be able to extend their leases before the sale. Previously complicated, time consuming and costly legal arrangements had to be agreed by Seller to assign their rights to extend their leases to their Buyers, which often lead to transactions being delayed and sometimes failing or created further complications further down the line for the parties involved. Now leaseholders do not have to wait for two years before they can extend their leases and they can sell their properties to a Buyer who will be able to acquire and extend the leases themselves at a future date without the previous complexities.

Buying Freeholds known as “Collective Enfranchisement”

Leaseholders will no longer have to pay freeholder’s costs to acquire their freeholds, which often resulted in individual leaseholders paying several thousand pounds for Landlord legal and surveyor fees particularly where the freehold comprised only a few leasehold properties or if there were intermediate Landlords involved in the acquisition.

Owners of leasehold properties in mixed use buildings will also be able to acquire their freeholds so long as the commercial floor space is not more than 50% of the overall floor space, which is double what was previously allowed.

Furthermore, leaseholders will also benefit from there being no two-year ownership requirement before they can acquire their freehold.

Other changes

The Act also makes it easier and cheaper for Leaseholders to take over the management of their Buildings exercising what is known as their “Right to Manage” and to challenge their service charges among other changes.

A word of caution

This Act brings about much needed certainty and some change, but it may lead to radical differences in the valuation of lease extensions which generally it is thought could be to the detriment of freeholders and benefit of leaseholders, but which may still mean that lease extensions will cost more for leaseholders in some cases. There are still several key issues not yet answered, including what will happen to the proposals relating to the ground rent caps which proved to be highly controversial for freehold owners. The same may be said to be true of the commencement provisions for this Act too, we are unsure as to when the necessary provisions will be made to implement these changes which we anticipate will be after the general election. Only once the changes are implemented will they benefit leaseholders.

Taylor Walton, working alongside leading surveyors with whom we have strong professional relationships, has long been advising Tenants and Landlords in lease extensions and freehold acquisitions and is part of a leading professional body that along with our peer groups have been campaigning for change in the residential leasehold sector. Therefore, we are familiar with the law but also how to deal with its impact in practice to obtain the best outcome for our clients. If you have any questions about the changes discussed in this article, please contact James Khakpour-Smith, or our Commercial Property team for assistance.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.

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