The long-awaited reforms to the extension of leases have been officially approved.

The Leasehold and Freehold Reform Act became law on 24 May 2024. It is important to note the new law requires further implementation before it takes effect and will be in the hands of the new government. The act aims to enhance the benefits for leaseholders.

Key Changes

A key change under the reforms is the length of term for a standard lease extension, which will be significantly increased. The current length of term to extend a lease for a flat is 90 years. Under the reforms, this increases to 990 years for houses and flats. In the long run, this means less lease extensions – which attract the payment of hefty premiums – should be required attracting.

The act also seeks to favour leaseholders in respect of any challenges to unreasonable service charges at the First-Tier Tribunal (Property Chamber). It is intended this procedure will be made less expensive and more focused and easier to navigate for homeowners. Currently, leaseholders bear the burden of legal costs in respect of any challenge to service charges, which inevitably makes it a difficult decision as to whether to bring an action where, more often than not, the legal costs outweigh the charges in dispute. However, the reforms remove the presumption that leaseholders will bear the costs of any service charge challenge. The reforms also aim to bring greater transparency in respect of the demand for service charges by introducing a standard form for invoices.

The reforms will allow leaseholders to acquire their freehold in a more cost-effective manner and with greater ease. Currently, leaseholders need to pay the freeholders’ costs when seeking to acquire a share of the freehold. The reforms will abandon this.

The Current Law

The current law requires leaseholders to own a property for two years before qualifying for a lease extension. Under the reforms, this requirement will no longer be necessary. This means an extension can be obtained upon purchase of the property.

The reforms also have a significant impact for commercial property owners where there is a mixed-use (residential and commercial) building.

The current law only allows for the purchase of a freehold in a mixed-use building provided the commercial units occupy less than 25%. This figure now increases to 50%.

The above is not an exhaustive list of the reforms, and it is important to note that whilst the reforms have become law, the secondary legislation to implement the reforms may not be enforceable until 2025/2026. If in doubt, seek legal advice to achieve the best outcome for your circumstances in light of the reforms.