Home » Practical guide to the Leasehold and Freehold Reform Act 2024

Practical guide to the Leasehold and Freehold Reform Act 2024

house or flat

The government introduced the much anticipated Leasehold and Freehold Reform Bill in the House of Commons on 27 November 2023, and it received Royal Assent shortly before parliament was prorogued on 24 May 2024, ahead of the General Election.

The official press release lauded it as “part of the most significant reforms to the leasehold system for a generation”. It will increase the rights of England’s 5 million leaseholders, of which a staggering 1.5 million houses are leasehold houses.

This is the latest version of the Bill, as amended during the Committee Stage in the House of Lords. I will update this blog post once the Leasehold and Freehold Reform Act 2024 is published.

The Act will impact the English Private Rented Sector as 38% of all properties that private landlords let to tenants are leasehold. This equates to 1.8 million of the 4.9 million properties in the PRS in England.

In this blog post, I explain key legal terms about leasehold reform that are used in the Act, before going through its key provisions to explain what it means in practice.

In writing this post, I draw on my experience as a lawyer, and also as the former owner of the top-floor flat of the property you can see in the photo above, which was my “accidental landlord” rental property

>> Related Post: Leasehold and Freehold Reform Act Timeline

Last updated: 25 May 2024

Extract from the NRLA magazine, Property, Spring 2024
Extract from a longer article in the NRLA magazine, Property, Spring 2024, talking about my former flat
finger puppets of marriage to with apartment block to show meaning of marriage value for leasehold and freehold
Marriage value combines the value of the lease before and after it’s extended or bought out

Before we get into the detail what the Leasehold and Freehold Reform Bill promises to bring leaseholders, I explain the key legal terminology that is referred to throughout the Bill:

1. What does leasehold mean?

An owner of a leasehold property (a leaseholder) doesn’t t own their property. Instead, it is the freeholder who owns the land and the property built on it. The freeholder gives the leaseholder permission to live in the property which is limited to a certain number of years, on terms set out in a lease agreement, and subject to various pieces of legislation. The term of a residential lease is usually 99 or 125. The length of the lease decreases year by year until it eventually runs out, and reverts back to the freeholder, unless the leaseholder extends the lease or buys the freehold.

In return for the right to live in the property, the holder of the lease pays ground rent and a service charge to pay for repairs and maintenance. The lease agreement and legislation (such as this Bill, when enacted) govern the respective rights of the leaseholder and freeholder are governed by the lease agreement.

2. What is marriage value?

Marriage value is one of the strangest terms in the law of property! Schedule 13 of Leasehold Reform, Housing and Urban Development Act 1993 defines marriage value is the amount of the property increases in the value after the completion of enfranchisement or a lease extension.

Marriage value is very complicated to calculate. Justin Bennett of LBB Chartered Surveyors has explained that marriage value is “at its peak around 30-60 years when it is at 50% of costs”. According to the Leasehold Advisory Service, when calculating the marriage value, the valuer will “rely on local knowledge and experience to assess the increase in the value of the flat arising from the new lease”.

3. What is ground rent?

Ground rent is a sum which the owner of a leasehold property pays each year to the owner of the freehold. Unlike the service charge, the freeholder does not need to provide a service of benefit to the leaseholder in return. Sometimes this may be a nominal amount, but they often they increase over time, for instance, by inflation. There’s no requirement for ground rent to be reasonable.

Before 30 June 2022, leases often contained clauses obliging leaseholders to pay a rent which doubled after a set period of time. For instance, if the ground rent started at £250, and doubled every 10 years, this could become £2,000 after 30 years. These are referred to as doubling ground rent clauses. These clauses are very unpopular with lenders, and can make a property difficult to sell to anyone other than a cash buyer, unless the freeholder agrees to amend the clause.

Although the Ground Rent Act 2022 introduced a ban on ground rent clauses, the ban only benefitted new leases granted from 30 June 2022.

Ground rents are important as they reflected into the cost to the leaseholder of extending the lease, as well as potentially being an on-going financial burden.

4. What are service charges?

A service charge is a payment payable by the owner of a leasehold property to the owner of the freehold to cover the cost of insuring, maintaining, repairing, cleaning the building and any common parts. It may also include the costs of management services provided by the landlord or by a professional managing agent, and contributions to a reserve fund or sinking fund for future liabilities.

Service charges are a highly contentious area for long leaseholders due to a lack of transparency over what services are provided and how they are calculated.

5. What does collective enfranchisement mean?

Collective enfranchisement means the rights under the Leasehold Reform Housing & Urban Development Act 1993 for the qualifying leaseholders of flats in a building to join together and buy the freehold of that building. They each buy a share of the freehold, usually by means of a company in which each of the participating leaseholders has a share. The freeholder is unable to refuse a request if qualifying leaseholders of at least 50% of the flats in the building participate, and under 25% of the building is non-residential. The amount the leaseholders will have to pay is set out in a complex formula in the 1993 Act.

6. What are estate charges?

Estate charges are fees that the owners of properties on an estate, which may well be freeholders, are required to pay towards the upkeep of communal areas on a development. They differ from service charges for leaseholders which pay for the repair and maintenance of buildings.

Estate charges don’t pay for the upkeep of buildings, but fund services for the whole development, such as maintenance of the gardens, street lighting and the upkeep of any private roads.

What new rights does the Leasehold & Freehold Reform Act 2024 give leaseholders?

Here is an overview of the new rights that the Leasehold and Freehold Reform Act gives leaseholders. (I will update this section once we have the final version of the Act).

1. New rights of leaseholders to have longer lease extensions for flats and houses

Clauses 7 and 8 of the Bill enable qualifying leaseholders of both flats and houses to obtain a 990-year lease extension at a peppercorn ground rent in exchange for a new valuation process that is more favourable to the leaseholder.

This is because the Bill removes the requirement for “marriage value” (see above) to be paid. It also caps the treatment of future ground rents in the valuation calculation at 0.1% of the freehold value. Whilst not a peppercorn, this is welcome news for leaseholders.

Until now, leaseholders have only been able to extend the leases for up to 90 years in flats, and 50 years in houses. The Bill will ensure that houses and flats will be treated the same.

Clause 1 removes the requirement for a leaseholder of a flat to have owned their property for at least two years before they can extend their lease. It also enables leaseholders of houses to extend their lease or buy their freehold as soon as they buy the leasehold house.

2. The new rights of leaseholders to buy the freeholds of their houses

The Bill enables leaseholders of houses to buy the freehold of their house as soon as they buy the house, instead of having to wait two years under the Leasehold Reform Act 1967.

3. Changes to the valuation method for collective enfranchisement by leaseholders

There are detailed provisions in the Bill which change the way in which the amount which leaseholders need to pay the freeholder in order to buy the freehold together. As with the change in the valuation method to enable leaseholders to extend their leases, the new valuation method removes the requirement for the marriage value to be paid, and caps the treatment of future ground rents to 0.1% of the freehold value. This will make it cheaper for most leaseholders to buy the freehold.

4. Collective enfranchisement for more mixed-use buildings

Should a group of leaseholders in a building wish to purchase the freehold together (collectively enfranchise) then under the Leasehold Reform, Housing and Urban Development Act 1993, they can’t do so if more than 25% of the building is non-residential. Under the Bill, this threshold will be increased to 50 per cent. This means that leaseholders of buildings with a higher commercial element to collectively enfranchise.

5. Greater transparency over service charges

As I know from experience, one of the biggest bugbears of leaseholders is the lack of transparency over the calculation of service charges by the freeholder (or their management company).

The Bill requires freeholders to be more transparent over service charges so that leaseholders will receive minimum key financial and non-financial information on a regular basis. This includes using a standard format for invoices, providing information about insurance and an annual report.

The intention is that leaseholders will have more information to enable them to challenge costs if they believe them to be unreasonable. Freeholders will also need to be more transparent over administration charges, by publishing up-to-date lists in advance.

As Michael Gove explained in the Second Reading debate: “a number of the people who have built, operated and retain the freehold on these estates levy service charges for all sorts of things that, in my view, are totally inappropriate. That is why the Bill makes clear that service charges have to be issued in a standardised format, so that they can be more easily scrutinised and challenged. It also makes clear that those charges can be challenged”.

Leaseholders will also have the right to request any information that is in the possession of the freeholder or managing agent regarding services, repairs, maintenance, improvements, insurance or the management of the buildings. It is like a “freedom of information” request for freeholders.

6. Introduction of transparency over estate charges

It can come as a surprise for people who buy the freehold of a new build house that they have to pay for the upkeep of the communal areas of the estate. The Leasehold and Freehold Reform Bill gives house owners the same rights to reasonableness and transparency when it comes to estate charges as leaseholders will have for service charges. They also have the right to challenge the charges at a Tribunal.

7. Changes to building insurance costs

Michael Gove commented in the Second Reading debate that freeholders had “abused their position” in relation to insurance commissions and that it was part of a “persistent pattern of behaviour that does require reform” to “milk” leaseholders.

Managing agents will only be able to charge transparent administration fees for building insurance, and won’t be able to receive commission from arranging building insurance on behalf of leaseholders.

8. Consultation on ground rent

The Government launched a consultation on 9 November 2023 entitled Modern leasehold: restricting ground rent for existing leases to obtain feedback on five different ways to cap ground rents. It’s the intention of the Government to decide which method to incorporate into the Leasehold and Freehold Reform Bill after the consultation ends.

  • capping ground rents at a peppercorn
  • setting maximum financial value for ground rent
  • capping ground rents at a percentage of the property value,
  • limiting ground rent to the original value when the lease was agreed
  • freezing ground rent at current levels.

The consultation on ground rent ended on 17 January 2024. During the Second Reading debate, Michael Gove said that whilst he cannot pre-empt the outcome of the consultation, his “favoured approach” is that it should be a peppercorn.

However, despite an article in The Sunday Times on 21 April claiming that ground rent would be capped at a maximum financial value of £250 per annum for ground rent for the next 20 years, the resuls of the consultation wee never published and the Bill received Royal assent without the expected provisions relating to ground rent.

>> Related Post: The latest on ground rent reforms

9. New ban on sale of leasehold houses introduced

Despite having been promised by Theresa May in 2017 and mentioned in the press release for the Bill, the ban on the sale of leasehold houses was not in the Bill as published.

A set of government amendments published on 23 February 2024, and passed during the Report Stage, introduced the ban on the grant of a “long residential lease of a house” from the date the provision comes into effect.

What is the definition of a long residential lease of a house in the Leasehold and Freehold Reform Bill?

The Leasehold and Freehold Reform Bill defines a “long residential lease of a house” as follows:

  1. The lease has a long term (more than 21 years).
  2. The lease demises one house (a “separate set of premises on one or more floors which forms the whole, or part, of a building, and is constructed or adapted for use for the purposes of a dwelling […] it is not a house if the whole of or a material part of the set of premises lies above or below some other part of the building).
  3. It is a residential lease (the terms of the lease do not prevent the house from being occupied under that lease as a separate dwelling).

10. Does the Leasehold and Freehold Reform Bill abolish forfeiture?

The Housing Minister, Lee Rowley, said in the House of Commons debate for the Report Stage on 27 February 2024: “we recognise the strength of feeling on the vexed issue of forfeiture […] this is a real and significant problem, and there is a huge iniquity at stake. I have heard from colleagues, both today and previously, about why we should act, and we are currently working through the detail of the issue. We will report back to the House with more details shortly.”

Lee Rowley didn’t indicate whether the government would go so far as abolishing all rights of forfeiture for long leases, as per the Labour Party amendment (NC5), which was voted down by the House of Commons, or whether the “detail” would involve it being restricted to, say, non-payment of service charge or ground rent.

However, no such provision made it into the final version of the Bill that received Royal Assent.

Why is commonhold not in the Leasehold and Freehold Reform Act?

The government did not “reinvigorate” commonhold as recommended by the Law Commission in 2020, despite comments by Michael Gove in January 2023 in The Sunday Times that leasehold is “an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”. In the Second Reading debate, he cited lack of parliamentary time in the Second Reading debate, but the former Housing Minister, Rachel Maclean, said that the work had already been done…

Instead, Michael Gove said in the Second Reading debate that they were “making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their [freeholders’] capacity to put the squeeze on leaseholders ends”. Whilst acknowledging there are some landowners and freeholders who take their obligations towards leaseholders seriously, he said that “individual leaseholders should not simply have to rely on the goodwill and good character of whoever the freeholder is; they need better protection in law, which is what we seek to achieve with the Bill”.

Angela Rayner promised in the Second Reading debate that a Labour Government would “make commonhold the default tenure for all new properties” and that they would implement Law Commission’s recommendations on enfranchisement, commonhold and the right to manage in full”.

Watch this space.

What does the leasehold and freehold reform bill mean for leaseholders?

32 thoughts on “Practical guide to the Leasehold and Freehold Reform Act 2024”

  1. Suzanne – nice article.

    These are the winners in government proposals. That’s the wealth transfer.

    If you lower deferment or yield rates then the pendulum swings outside of the broad band (which may be wider depending on the rate used).

    The market had lower yields prior to government intervention – now the market will follow the totalitarian approach of the government / Gove.

    I have negotiated claims for mainly tenants for 30 years and lectured on the effect of deferment rates and relativity influencing the property market. Ultimately this is no different.

    1. Marriage value is a by-product of an imperfect market. The 5% rate set in 2006 in Sportelli was priced off a risk-free rate of 2.25% and at the time the Ogden rate used in personal injury claims was 2.5%

      Since 2019 the Ogden rate stands at MINUS 0.25% and therefore a fall of some 2.75% in that risk-free rate. If just a third of that fall was taken off the risk-free rate used to build up the deferment rate, used in Sportelli then the deferment rate would be around 4% and at that rate most marriage value disappears. Hence, in a perfect no act world market with no emotional attachment to property, marriage value should be temporary as the capitalization and deferment rates should adjust and marriage value disappear.

  2. Will this act allow flat owners to buy a share of their freehold or just make extending the lease easier and cheaper without the marriage fee?

    1. Yes it will enable leaseholders to buy a share of the freehold, with the new method of valuation. I’ll update the blog post to go into this in more detail, but I’ve replied to your message in more detail in the Facebook group,

      1. Hello, I don’t understand the marriage value, I have a lease with 83 years remaining, I gather that if it falls under 80 then the cost can increase significantly, will those new bills change this? Thanks

  3. Suzanne as a freeholder of my property I now find to my cost that I was miss sold my property by my builder stating its only £65/year for all grassed area to be cut as the council no longer adopt land.
    This is completely untrue and our costs have already spiralled to an estimate of £160 next year to Gateway our private management company.
    What redress as freeholders are we achieving with this Reform Bill?
    All the talk seems to revolve around leasehold but basically this Fleecehold is just another con, that charges me again for what I am already paying for in my full council tax

  4. Hey, great article.

    I wondered if you had an information as to whether this reform may be applicable to commercial property. To confirm my commercial property resides within a house.

    Kind regards

    Lou

    1. The bill description says it amends the rights of tenants under long residential leases to acquire the freeholds of their houses, to extend the leases of their houses or flats, and to collectively enfranchise or manage the buildings containing their flats, to give such tenants the right to reduce the rent payable under their leases to a peppercorn, to regulate charges and costs payable by residential tenants, to regulate residential estate management and to regulate rentcharges.

      I don’t think it gives a commercial unit in a house any rights, but it’s best to check with a specialist solicitor.

  5. Thank you for an informative article.

    Our RMC has the opportunity to purchase the freehold based upon a multiple of the groundrent which will be reviewed (increased!) on 1/4/2024. The current level of groundrent makes this opportunity more favourable than following the statutory collective enfranchisement route if this were to be based upon the proposed 0.1% of capital value.

    Do you think the proposed statutory figure will have to be amended in line with whatever comes out of the groundrent consultation? Obviously the options for a groundrent reduction to zero or the initial groundrent could make us postpone taking up the offer in the short-term.

    1. I think it’s best to get advice from an expert on enfranchisement I would guess the answer is yes to your question, but I wouldn’t want you to make a financial decision based on what my hunch is

  6. Hi, I have just reviewed the published PARLIAMENTARY DEBATES on the leashold reform bill (https://publications.parliament.uk/pa/bills/cbill/58-04/0013/PBC013_LeaseholdandFreehold_1st8th_Compilation_25_01_2024.pdf), but I’m nonthewiser about how much it will cost to extend my lease. I have 78 years remaining in a London flat so I’m waiting anxiously about the abolishment of marriage value. I understand the objective of the bill is to reduce the leaseholder’s financial burden, and in my case, this COULD be a significant saving through marriage value abolishment. However, there seems to be some complications on how the new premiums will be calculated, and I cannot see anywhere if overall, the new calculator will save me money and whether it is worth waiting. I’m losing ~£200/mth (and the freeholder is gaining this) just by waiting……
    Do you know if the new calculator has been transparently published yet? Schedule 2 of the Bill is supposed to contain it but I can’t decipher the technicalities.

  7. Great article, does this applies to leasehold shared ownership house which are restricted to 75% and no further staircase allowed in original lease

  8. I found this informative thank you. And I’m very confused about what to do! My family have started the process to extend my Mum’s lease.
    We can pay a solicitor quite a large sum of money to serve notice on the landlord to start the negotiations on the cost of a 90 year extension to my elderly mums flat. We have estimated that this will cost about 30,000? Plus legal fees. If the bill is passed does that mean that others who have waited longer will pay less and get a 990 year extension? Do we wait?

  9. Good morning
    We are one of 4 new builds(2020) who were coerced into signing up to be shareholdets of a management company set up by the builder of our properties and to pay a fee of £325 per annum for services connected to our properties. After only 5 months we were told the fee had increased to £2040 per annum. We refused to pay without explanation and eventually we were cut off leaving us to dispose of our own sewerage which I am still doing on behalf of 3 pensioners one with a disabled son. Will this new bill help us to get out of this nightmare senario.

  10. Thank you for the nice article. I see that the leasehold reform bill passed its 3rd reading on the 27th of February and is now once again with the House of Commons. Does the 3rd reading still include abolishing marriage value?

  11. Good Morning,

    Thanks for an informative article.

    I have just got a new job and we need to move from our leasehold flat which has 85 years remaining on the lease. Our plan is to try time the sale of the flat till the new bill/act comes into force so the purchaser can take advantage of the new rules. Does this sound a sensible strategy?

  12. I extended my lease under the current legislation by 90 years and now have a peppercorn ground rent.

    Is there any information on how the new Bill would calculate the cost of a 990 lease extension where the ground rent on my current lease is already nil?

    I assume it is the value of extending a lease with 200 years to 1190 years. If the additional years are worth anything it must be low but I am left wondering how low is low?

    There seemed to be provision in the Bill to ensure the Landlord is not out of pocket for low value extensions but no account is taken of past expenditure on an earlier lease extension.

  13. I understand the leasehold reform bill has now been quietly dropped, as the financial changes would harm the investments of pension providers – who own many freeholds – which in turn could affect people’s pensions. Can you throw any light on this please?

  14. We own a leasehold house with 107 years remaining on the lease. We pay ground rent of around £6 per year. On 21 March 2024 ahead of the new legislation coming in the Freeholder has offered the sale of the freehold for £1,500 plus legal and valuation costs of £1,900. They are offering to include our legal costs as well with a reputable local solicitor for a total of £3,200 including VAT. The offer is only available for 60 days from the 21 March 2024. I am wondering if we are better waiting for the bill being passed?

  15. I have an onerous ground rent of 300 pds p.a. I lost my first buyer last year then ended up having to pay aborted legal fees of £1500 without moving anywhere. I have sold again but my new buyers lender and solicitor want a deed of variation, the lender wont accept indemnity insurance. The freeholder wants £13000 to do the deed of variation to level the ground rent to £250 which after paying that and legal/agents fees leaves me with hardly any money to pay my removal company. Im retired and moving north to be with my son and his family. My property has a healthy 114 yrs left on lease and is a new property and I never thought I would have a problem selling. If the bill gets passed by July I may be o.k. but do you think it will be passed in time as it does seem to be rushing through House of Lords quickly at the moment? I have worked so hard all my life bringing up my family on my own to have everything taken away.

  16. Hello. I’m contemplating buying a freehold house on a development which would be subject to estate management charges (secured by rentcharge) and as this is new territory for me would like to be really clear about the implications. I see from a House of Commons Library document (Leasehold Reform in England and Wales: What’s Happening and When?), published 12 March 2024, that the Bill will “ensure a rentcharge owner is not able to take possession or grant a lease on a freehold property where the rentcharge remains unpaid for a short period of time”. But I’ve read all through the latest draft paying particular attention to Parts 5 and 6 and can’t find this provision at all. There is something in Part 7, provision 112, amending the ‘remedies for arrears of rentcharges’ in the Property Act 1925, but 112 seems expressly to apply only to what are defined as ‘regulated rentcharges’, which are those that couldn’t be created under the Rentcharges Act 1977 Section 2. Since under S2.3 of the RA 1977 estate rentcharges of the kind that will apply on the development can be created, that seems to imply that estate rentcharges are not ‘regulated rentcharges’ and therefore remedies for their arrears are unaffected. Is this so? I have no legal training so may have completely misunderstood what’s going on here. Some light would be really helpful and much appreciated!

    1. Hello. Sorry, but I can’t provide advice on this website as I’m not a practising solicitor. This is the sort of thing you should ask your own solicitor. That said, “rent charges” are historical, with no new ones creating since 1977. They’re not the same as estate charges, so the 1977 Act is probably a red herring.

  17. I’m thinking a buying a new build leasehold house. The developer has made 10 dwellings (5 flats and 5 houses) from a small former commercial site. All units are leasehold with a 990 lease and zero g/rent with provision that when the last property sells, all of the new owners will become shareholders of the freehold in a company.
    Some of the properties have already completed.
    My question is if the bill receives royal accent before I exchange contracts, will the developer HAVE to sell the house to me as a FREEHOLD (maybe with an estate charge instead of service charge) because he will be banned from selling me a leasehold house as the first new owner? Or is it that because it’s already registered as leasehold he can? The house is connected to other houses but separate from the flats building.

    1. We are waiting to see if the Leasehold and Freehold Reform Bill will be in the list of Bills that will be pushed through in the “wash up”. Hopefully we will know soon. I would think twice about buying a property with an estate charge or service charge unless increases are capped, as it means you’re not fully in control of your own property.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top