Leasehold reforms in 2024 – what they mean for you
Leasehold reforms are due to take place in 2024. The Leasehold and Freehold Reform Bill aims to “make long-term changes to homeownership for millions of leaseholders”. This includes making it easier and cheaper for leaseholders to buy their freehold. The Bill will also make it easier for leaseholders to extend their lease and challenge bad practice.
Among the raft of reforms proposed by the 200+ page reform Bill are:
Lease term increase and lease extensions
Under the reforms, the standard lease term will change from 90 years to 990 for houses and flats, thus giving leaseholders greater security.
Having a short time left on a lease term can be a deterrent for buyers and make it harder to obtain a mortgage. It can also be a complication for sellers as it has a detrimental effect on the value of the property. The shorter the term left the more the property is devalued.
Currently, the cost of extending a lease can prove prohibitive. The reforms aim to make it easier and cheaper to extend the lease of a property. The reforms will also remove the requirement for you to have lived at your property for two years before you can request a lease extension. You can now do so at any point.
Peppercorn ground rent
As a leaseholder, you have the right to use the property, but not the land on which it is built. So, you pay ground rent on the property (in addition to any service charge). The current average ground rent is £300. It can be up to £1000 in London. The reforms will reduce ground rent to a ‘peppercorn’ rent. This means the freeholder can charge no more than the cost of a single peppercorn. This effectively reduces ground rent to £0.
Transparent service charges
Service charges have long been a bone of contention for leaseholders, with high costs, unexpected increases, and no caps on what can be charged.
Service charges generally cover general maintenance and repairs for the building structure and common areas. Additionally, management costs, caretaking/concierge services and building insurance.
The reforms aim to make service charges, administration, commission and building insurance fees more transparent, so that leaseholders know exactly what to expect. Landlords will need to set out charges in a prescribed manner and provide tenants with an annual report. Tenants will also have the right to request service charge information.
What happens next
The Bill has its second reading in the House of Lords at the end of March 2024. The Housing Secretary, Michael Gove has stated he expects the Bill to become law before the next general election.
For advice on how and when to extend a lease, or to purchase the freehold of a property, contact a specialist property lawyer: