Leasehold and Freehold Reform Act 2024

Insight shared by:

Gateley Legal

Article by

The Leasehold and Freehold Reform Act 2024 (the Act) was one of the last pieces of legislation to make it onto the statute books before Parliament was dissolved. It is one of the most important pieces of legislation affecting UK real estate in many years, with the talking points arising from the legislation as enacted revolving not only around the significant measures that it does contain, but also those that it does not.

The Act received Royal Assent on 24 May 2024, during the ‘wash-up’ period. The initial aim of the legislation was to significantly reform the leasehold system in England and Wales, including by banning the sale of new leasehold homes. It has been watered down during its passage through Parliament and, presumably because of a desire to push the legislation through before the general election, some key initial proposals have been dropped.

What does the Act contain?

As enacted, the legislation aims to improve the rights of residential long leaseholders of houses and flats, and to make it cheaper and easier for people to extend their leases, buy their freeholds and take over the management of their buildings.

The headline provisions include those which:

  • increase the standard lease extension term to 990 years for houses and flats (from 50 years for the former and 90 years for the latter);
  • remove the two-year ownership requirement for a new leaseholder before they can extend their lease or buy their freehold;
  • allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over the building’s management (currently leaseholders in mixed use buildings where more than 25% of the floor space is non-residential are unable to do this);
  • ban the creation of new leasehold houses (save for in exceptional circumstances), meaning that every new house in England and Wales will be required to be freehold;
  • entitle leaseholders to increased transparency in relation to the service charges they pay, by requiring certain bills to be issued in standardised formats.

What does the Act not contain?

One of the most talked-about initial proposals – to abolish or cap ground rents in existing leases – has not made it into the Act. This was always a controversial policy, often vocally supported by leaseholders but opposed by many landlords and investors.

There is, additionally, no ban on the forfeiture of long residential leases, despite Government recognition that this is an area ripe for reform.

What will the practical consequences of the Act be?

The obvious impact is on residential landlords and tenants – there will be more opportunity for residential tenants to exert control over the management of the property. It is also likely that lease extensions will become more common. However, those with mixed-use schemes will also be affected (for example buildings containing residential flats above ground floor commercial units).

When will the provisions come into force?

None of the Act is yet in force. Some of the provisions in the Act relating to rentcharge arrears, and others amending the Building Safety Act 2022, will become law on 24 July 2024. As for the remainder of the Act, a likely timescale for implementation is uncertain. The Government previously suggested that it aimed to bring the majority of reforms into effect in 2025-2026, but whether this remains the case for whichever Government is in power after 4 July 2024 remains to be seen.

What next?

There are also concerns in some parts of the market that the last-minute rush to get the Act through has resulted in a more piecemeal approach to reform in this area and a lost opportunity to go further in a coherent way. We will also need to wait for the requisite secondary legislation before we know what the reforms will look like in practice. It is likely that this is the beginning of the story for long leasehold reform, rather than the end.

Gateley Plc is authorised and regulated by the SRA (Solicitors' Regulation Authority). Please visit the SRA website for details of the professional conduct rules which Gateley Legal must comply with.

Got a question? Get in touch.