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10 Jun 2024

An introduction to the Leasehold and Freehold Reform Act 2024



On 24 May 2024, a milestone was achieved when the Leasehold and Freehold Reform Act 2024 ("LFRA 2024") received Royal Assent.

Although the Act has been discussed for a long time, the impending general election was expected to delay its progress. However, perhaps surprisingly, the draft bill was included in the legislative “wash-up” carried out in the period after the election was called but before parliament was dissolved, and the Act has passed.

This doesn’t give the full story. Although the Act has passed, the operative provisions relating to lease extensions are not yet in effect and secondary legislation is needed before the key provisions come into force. No indication of timing has been given, but it seems unlikely that the core provisions will be effective this year, and maybe not until 2026.

Set out below is a summary of main reforms which take effect once the necessary secondary legislation is passed.

Key Provisions of the LFRA 2024

The LFRA 2024 makes substantial amendments to the laws governing leasehold enfranchisement and lease extensions for both houses and flats. These changes generally benefit tenants (rather than freeholders) and include:

  • Allowing for lease terms to be extended by 990 years for both houses and flats. This is a significant increase from the previous extensions of 50 years for houses and 90 years for flats.

  • Elimination of the two-year ownership requirement for leaseholders wishing to extend their lease or purchase their freehold. This opens up enfranchisement options to a wider class of tenants.

  • Changes to the way in which the premiums for lease extensions are calculated. Detail on this is awaited, but the intention is that it will take a more formulaic approach and reduce the scope for negotiations between parties. The previous concept of sharing the “marriage value” (being any hypothetical profit a leaseholder made once their lease was extended) between the freeholder and leaseholder has been abolished.

    This is a contentious change and benefits long-leasehold tenants to the detriment of institutional property companies and pension funds that hold reversionary freehold interests, so it will be interesting to see if any legal challenges are made to this.

  • Making it cheaper for tenants to buy their freehold by requiring each side to pay their own costs (rather than the tenants having to pay the freeholder’s costs, as was previously the case).

  • Relaxing restrictions that previously prevented leaseholders from assuming management of a mixed-use site or acquiring the freehold if more than 25% of the floor space was non-residential. The threshold has now been raised to 50%, enabling a greater number of leaseholders to exercise the right to manage (RTM) or pursue collective enfranchisement. This will be of significant concern to property funds and companies that may now not be able to control how their mixed use building are run and maintained.

  • A ban on the creation of new leasehold houses (other than a very limited number of specific exemptions). Given the very low number of leasehold houses being created over the last few years, this change is unlikely to have much practical impact.

What is not in the Act

There is no abolition of, or even cap on, ground rents for existing leases. The proposal to cap or abolish ground rents is highly controversial and could lead to legal challenges from the pension and property industries. The proposal to cap ground rents may well reappear with the new government (and remember that it’s already the law that new residential leases cannot be granted with a ground rent).

Future Developments

This Act may only be the start of significant reform. The new government will need to consider what steps it takes next. We will continue to track these reforms and keep you updated.

Should you have any immediate concerns or require further clarification on the LFRA 2024, please do not hesitate to contact us.