It is estimated that hundreds of thousands of leaseholders are waiting for changes to leasehold law which could make it easier and cheaper for them to extend their leases or purchase their freeholds.
These changes were enacted by the Leasehold and Freehold Reform Act 2024, which was passed shortly before the last election. However, this Act is in the most part not in force and will require further legislation to implement it. Since the election, progress has been slow.
The changes contained in the Act are:
Change 1: Abolition of Marriage Value: When your lease drops below 80 years it suddenly gets more expensive to extend, because of an additional charge paid to the freeholder called “Marriage Value”. The expectation is that leaseholders will no longer have to pay Marriage Value when the new legislation comes into force.
Change 2: Capping ground rents (but only in the lease extension calculation): During a lease extension or freehold purchase you pay your freeholder a sum of money to “buy out” each one of your future ground rent payments. This sum is based on how much ground rent you currently pay, and how much it rises over time. Under the new law, in most cases, the calculation will work on the assumption that your ground rent will never rise above 0.1% of the value of your property. To put this in context: if you own a £200,000 flat with a ground rent of more than £200 (or if it rises to more than £200 during the term), this change will make it cheaper for you to extend your lease.
Change 3: Freeholders will pay their own fees! Under the current rules the leaseholder must not only pick up the bill for their own legal and valuation costs associated with a lease extension, but their freeholders’ too. The expectation is that for many lease extensions under the new law, the freeholder will need to pay their own costs.
Change 4: Simplify the lease extension calculation: It is expected under the new law that much of the calculation used to decide how much you should pay for a lease extension will be prescribed by the government, rather than argued about by valuers. This should make it easier to determine the lease extension cost, but won’t necessarily make it cheaper. These calculations use various rates and percentages. If the Government sets these at a level which is less favourable to leaseholders than those rates currently agreed, then the cost would go up.
It seems plausible that these rates could be tweaked to benefit freeholders, to offset some of the negative impact associated with Changes 1 to 3 above.
Change 5: Allow longer lease extensions (to 990 years): Under the current law you can extend your lease by an additional 90 years. If you’ve got 80 years remaining, you’ll have 170 years after extending your lease. Under the new law, you’ll get an additional 990 years, so in the example above you’d have 1,080 years after the extension. This change is less valuable than it sounds: many leases and buildings won’t be existing in 180 years, let alone 1,080. Equally, anyone who has already extended under the existing regime should be able to extend again fairly inexpensively, because they’ll already have a really long lease.
Change 6: Remove ownership condition: Until recently, leaseholder have had to wait two years after purchasing a property before they become eligible to extend their lease.
Despite the Leasehold and Freehold Reform Act 2024 passing just before the last general election, progress has been slow since. For those leaseholders waiting for reform before they can remortgage or sell their properties, it must feel like an eternity.
The one step forward is that the last of the changes above – the removal of the requirement to own a flat for two years before you can extend a lease – is now in effect! From 31 January 2025, you can now do a lease extension as soon as your ownership of your new flat is registered at the Land Registry.
This step forward is tempered by two more substantial steps back.
The first step back is that in late January six groups of freeholders were granted permission for a judicial review to consider the legality of the Leasehold and Freehold Reform Act.
Specifically, it will look at whether the first three changes set out above (I.e. the things which make lease extensions cheaper for leaseholders) infringe upon the human rights of freeholders.
This judicial review is expected to be a four-day hearing in July. If the High Court decide against the freeholders, it seems likely they will seek permission to appeal to the Supreme Court.
The second step back is that in November the government issued a Ministerial Statement saying that they would consult “Next Summer” on the valuation rates which are used to work out how much a lease extension should cost. There is no obvious reason why this consultation couldn’t have been launched immediately, so this delay is suggestive that the government are going to take their time implementing this reform.
The leaseholders who stand to gain most from these reforms are those with leases already below 80 years or those with a high ground rent, but many of these people cannot put their lives on hold indefinitely waiting for the reform to come into effect.
Accordingly, we are advising people in this position to decide on a date in the future that they will start their lease extension – perhaps a year or two from now. We’re encouraging them to save for their lease extension as though they are doing it under the current legislation. If that date comes around and the new legislation is in force and has made it cheaper for them, then that will be great. If the reforms are still languishing, at least these leaseholders can make a choice to proceed under the current legislation.
Linz Darlington is a lease extension specialist at Homehold