Leasehold and Freehold Reform Act Published

Breaking news! Following receipt of Royal Assent on 24 May, the Leasehold and Freehold Reform Act (the 'LFRA') has now been formally published.

The LFRA (which amends the law for houses and flats owned on leases of more than 21 years) was one of a small number of bills that were considered as part of a 'wash-up' before the dissolution of Parliament ahead of the general election on 4 July.  Conversely, other proposed legislation including the Renters (Reform) Bill (which was proposed to amend the law on short residential leases and ban non fault evictions) did not make it through in the wash-up period and has effectively been postponed. 

Notwithstanding the LRFA being enacted, most of the new provisions will not come into force without future secondary legislation. Given the potential for a new government it therefore remains unclear when the provisions will come into force, and indeed if they will at all!

If and when brought into force, the provisions of the LFRA will remove the following for both lease extensions and acquisitions of freeholds:

• Marriage value: The removal of marriage value from the calculation methodology for the premium payable (see our recent post here); and the
• Obligation to pay landlord's costs: A shift in the payment of landlord’s costs where tenants are no longer required to pay a landlord’s legal or professional fees for their lease extension or freehold acquisition.

Right to Extend Leases of Houses and Flats

The ability for tenants to extend the length of leases of flat and leasehold houses will also be amended as follows:

• Abolition of Ownership Condition: Tenants no longer need to have owned the long lease of a flat or a house for two years before they qualify to extend their lease;
• Abolition of 12 month holding period: It is no longer necessary for a tenant or nominee purchaser to wait 12 months following withdrawal of one notice before serving a further notice seeking an extended lease;
• Introduction of longer extensions: Tenants will be able to acquire an extension of up to an additional 990-years with a ground rent reduced to a peppercorn (rather than the current statutory extension of 50 years for a house and 90 years for a flat).

All of this means purchasers of leasehold properties do not have to wait to extend their leases and (subject to affordability of the premium for extension) leaseholders can obtain much longer terms.

Right to Acquire the Freehold

The ability for tenants to "enfranchise" (that is, to acquire the freehold of houses or to collectively acquire the freehold of blocks of flats) will be amended to:

• Include more mixed-use buildings: The limit on enfranchisement for buildings in mixed use has changed. Enfranchisement will be permissible where non-residential use takes up 50% of the building (rather than the current limit of 25%) meaning more buildings will be subject to the right to enfranchise;
• Introduce a new ability to force leaseback: The LFRA creates a new right for leaseholders to require their landlord, on enfranchisement, to take a lease back of any unit not let to a participating tenant. This means it will be more affordable for tenants to acquire the freehold of mixed use buildings as they can require the landlord to take a lease back of the commercial parts which might otherwise make the premium unaffordable.

Service Charges

For both lease extensions and acquisitions of freeholds the LFRA also includes provisions for:

• Simplification of Administration of Service Charges: The simplification of statutory regulation around administering service charges; 
• Introduction of Freeholders Challenge: The ability for freeholders to challenge the reasonableness of estate management charges in the same way as leaseholders can challenge the reasonableness of service charges;
• Abolition of 12 month holding period: As for lease extensions, it is no longer necessary for a tenant or nominee purchaser to wait 12 months following the withdrawal of one notice before serving a further notice for an extended lease or to collectively purchase the freehold of a building.

Our previous article discussed the impact of the Bill on landlords and tenants (in particular the impact for charity clients) and can be accessed here.

It is also worth noting that the LFRA does not contain any provision for capping ground rents in existing leases, and the Government's consultation on this proposal has not been published.

If you have any questions about how any of the above changes might affect you or your charity, please contact a member of the Foot Anstey Charity Property team.