Recent developments in the ongoing leasehold reform saga signal significant changes on the horizon. Following a ministerial statement by Matthew Pennycook on Thursday, 21st November 2024, we ended the year with greater clarity regarding the timeline for implementing the Leasehold and Freehold Reform Act (‘LAFRA’), the need for secondary legislation, and the Government’s plans for further consultations. The Government remains committed to dismantling what it terms “the feudal leasehold system” and making commonhold a viable alternative.
Key Reforms Tabled for Early 2025
Among the forthcoming changes, a pivotal reform from January 2025 will eliminate the requirement for leaseholders to wait two years after purchasing their property before exercising their right to extend their lease or buy the freehold to a leasehold house. At the time of writing, we do not have the implementation date for this, but it is expected soon. Additionally, a package of measures will expand access and reform cost rules and voting rights for leaseholders claiming the ‘Right to Manage.’
While these updates promise sweeping changes, uncertainty lingers around the proposed commencement mechanism or precise implementation dates. Nonetheless, these changes mark a definitive step toward empowering leaseholders and simplifying the enfranchisement process.
Further Consultations and Promised Legislation
In the first half of 2025, consultations will focus on several key aspects of the 2024 Act:
- Ban on Buildings Insurance Commissions: Exploring the details of enforcing this prohibition restricting the charging of commission for arranging insurance. The basis on which agents / the insurer can charge will have to relate to the cost of the work done to place cover.
- Service Charge Challenges: Streamlining the process to dispute ‘excessive’ service charges. There will be a shift in emphasis in the costs regime with the landlord needing to apply to be able to add the costs of proceedings to the service charge budget, a complete reversal from the current position.
- Valuation Rates: Determining the appropriate rates for calculating enfranchisement premiums. These are to be consulted on in mid to late summer, with amendments also being made to primary legislation.
- Mixed Tenure Estates: Introducing new safeguards for owners of freehold houses paying estate management charges –bringing these under the jurisdiction of the First Tier Tribunal
- Banning Leasehold Flats: Examining the feasibility and implications of prohibiting this arrangement. This is likely to be dealt with in a White Paper (see below).
The Government’s ambitious agenda includes publishing a White Paper in early 2025, followed by a draft Leasehold and Commonhold Reform Bill, which may follow in the latter half of the year. These measures aim to lay the groundwork for a comprehensive overhaul of property ownership structures in England and Wales.
Human Rights Challenges Looming
One critical issue omitted from the ministerial statement is the ongoing Human Rights concerns surrounding the LAFRA. A number of freeholders have initiated legal proceedings in the High Court, arguing that the Act infringes upon their right to ‘peaceful enjoyment’ of property under the Human Rights Act 1998.
A High Court hearing scheduled for January 2025 will decide whether the claimants can pursue a judicial review. This legal challenge underscores the delicate balancing act required to protect both leaseholders’ and freeholders’ rights. At its core, the debate centres on whether the LAFRA’s provisions merely ‘control the use’ of freeholds or cross the line into ‘depriving’ owners of their property. Expect to hear more on this from the end of January onwards, and the progression of these cases may well impact on the proposed adjustments to the valuation reforms and potentially also any new Bill that is published.
Striking a Balance
The LAFRA seeks to shift power significantly from freeholders to leaseholders, aligning with the government’s stated goal of making enfranchisement ‘cheaper and easier.’ While the Act includes a declaration of compatibility with the Human Rights Act, its robustness will ultimately hinge on whether the courts deem the interference with property rights justifiable. If not, freeholders could secure permission to proceed with judicial review, potentially changing some key aspects of the reform.
Financial Implications and Ground Rent
The Residential Freehold Association has previously warned that capping and regulating ground rents could expose the Government to compensation claims exceeding £30 billion. Although the LAFRA currently omits ground rent control, Matthew Pennycook has pledged to address this issue in the forthcoming Leasehold and Commonhold Reform Bill. The financial stakes and potential compensation liabilities remain a critical consideration for policymakers, particularly within the Treasury.
Valuation Reforms: A Protracted Timeline
Valuation reform, a cornerstone of the 2024 Act, appears to face considerable delays. The government plans to consult on capitalisation and deferment rates in summer 2025 as an initial step toward rectifying the Act’s ‘serious flaws.’ However, these consultations and subsequent legislative approvals could push meaningful changes further into the future—possibly by a year or two.
Moreover, valuation reforms may eventually be integrated into the broader Leasehold and Commonhold Reform Bill, which is unlikely to become law until the end of this parliamentary session in 2029. This protracted timeline underscores the complexity and contentiousness of reforming property valuation frameworks.
Political Considerations
The LAFRA’s rushed passage during the ‘wash-up’ phase of the previous parliamentary session raises questions about its long-term viability. Labour’s stance on the Act could evolve as it evaluates whether the LAFRA aligns with its broader policy objectives. Should view the Act as a hindrance rather than a help, it may pursue a fresh, consolidating piece of legislation. Such an approach could better achieve the party’s goals of abolishing ground rents, reinvigorating commonhold, and enacting sweeping valuation reforms, it would also allow them to ‘blame’ the previous administration for the flaws in LAFRA.
Implications for Leaseholders
For leaseholders considering enfranchisement, the current landscape offers both opportunities and uncertainties. The anticipated delays in implementing valuation reforms provide a clearer window to act under existing rules. However, prospective changes to enfranchisement costs and processes warrant close monitoring.
The Road Ahead
As the leasehold reform agenda unfolds, stakeholders should prepare for an extended period of consultations, legislative adjustments, and potential legal challenges. While the Government’s commitment to reform appears to remain resolute, the complexities of balancing competing interests and navigating uncharted legal territory will undoubtedly shape the pace and scope of change.
As ever, the coming months and years will be critical in determining whether the LAFRA’s ambitious goals can be realised. For now, leaseholders and freeholders alike must stay informed and engaged as this transformative chapter in property law continues to evolve.
Mark Chick
1st January 2025
