The Leasehold & Freehold Act 2024 did in fact make it through the pre-election ‘wash-up’ in Parliament. Michael Gove’s parting gift to thousands of flat-dwellers, for which the current government will certainly seek to take credit in the election campaign (despite support from Labour), on the surface benefits leaseholders over freeholders and is likely to prove a further setback to the buy-to-rent housing market.
The government still aims ultimately to abolish leasehold tenure (likely first for new properties), but, in the main, the provisions of the 2024 act will not come into force until secondary legislation is passed. Given the complexities, this may take several months. It is widely expected that the full provisions of Act as regards lease extensions will not be in force until 2026 at the earliest.
“In January [2025] we will remove the ‘two-year rule’ that meant leaseholders had to wait two years from purchasing their property to enfranchise (when leaseholders buy their freehold or extend their lease).”
Aside from this, the Leasehold Reform, Housing & Urban Development Act 1993 will continue to apply.
So what does this mean for leaseholders seeking to extend their lease and for their landlords? As discussed in a previous post, the main difference for extensions of leases with 80 or more years remaining is that the term will be extended not by 90 years as before but by 990 years! Ground rents will be reduced to zero, and the costs of extending the lease will now be shared by both parties (previously the leaseholder paid both parties’ costs).
Leaseholders
If the remaining term of your lease is getting down below 82 years (the cost of extending rises steeply below 80 years remaining), we would not recommend delaying the process, which can take several months. If you are lucky, your landlord may offer a voluntary/informal route, but serving a notice under s.42 of the 1993 Act will, however, commit you to paying the landlord’s valuation and legal fees. You will also only be entitled to a 90-year extension, although it is possible the secondary legislation may retrospectively upgrade this to 990 years for applications under the new Act. The extra costs won’t come anywhere near the effect of missing the 80-year ‘step’!
If the remaining term is 82 years or more, it could be worth waiting, unless of course you are wanting to remortgage, transfer, or sell the property. Even though the previous 2-year wait after buying a leasehold before qualifying to apply for an extension will no longer apply (once the Act comes into force), you are likely to realise more in resale value than the cost of extending.
Freeholders
Leaseholders may be aware of the coming legislation change (although not when), and a responsible landlord will be open about this. However, for reasons articulated above, it may still be expedient for them to extend ahead of the change, and it makes sense for landlords to extend as many leases as they can while valuation and legal fees can be recovered.
As well as the professional fees or costs, there are hidden administrative costs and headaches associated with lease extensions. If you are a corporate landlord with a portfolio of flats (especially where 125-year leases were granted in the 1990s and leaseholders will be wanting to extend), you could perhaps follow the lead of enlightened landlords like Enfield Council, who already offer leaseholders a simpler informal/voluntary route where costs are typically lower.
Leaseholders apply online and are offered to extend for a fair premium (valuers are instructed to pitch the premium at the middle of the possible range of values), but it’s non-negotiable, and applicants still have recourse to the formal route if they are not happy. In Enfield this has not happened in over 3 years, as their costs are less and the margins are small. Legal fees are less, as there are no formal notices to be served, and valuation costs are contained, as there is no quibbling over the last few hundred pounds.
In fact, this ‘collaborative’ approach with a neutral valuer may even be the more sensible route to take once the Act comes into force and the parties have to share the costs.
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