The leasehold changes coming that could cut your lease extension costs
The leasehold changes coming that could cut your lease extension costs For anyone who owns a leasehold property or is considering buying one, the pace of leasehold reform has been encouraging but difficult to follow.
The Leasehold and Freehold Reform Act 2024 received Royal Assent on 24 May 2024 and introduced a framework for significant changes to lease extensions, enfranchisement, service charges and leaseholder protections. However, many of its provisions are not yet in force and require further regulations or commencement orders before they take effect. Understanding what has changed, what is expected, and what remains dependent on future legislation is the most useful way to approach any decision involving leasehold property.
What has already changed
Some important reforms have already taken effect.
The Act removed the previous requirement for leaseholders to own their property for two years before starting a statutory lease extension or enfranchisement claim. Eligible leaseholders no longer need to wait two years after purchasing a property before exercising these rights.
The reforms also expanded access to the Right to Manage by increasing the proportion of commercial space allowed in mixed-use buildings. This means more leaseholders may qualify to take control of the management of their building where the required conditions are met.
However, many of the headline reforms, particularly those affecting lease extension valuations and costs, are not yet operational.
What is expected next
Further leasehold reforms are expected through additional regulations and legislation, but the exact timing depends on when individual provisions are formally brought into force.
The reforms are intended to improve transparency around service charges, strengthen leaseholder protections and make it easier for homeowners to understand and challenge unreasonable costs. However, these measures should not be treated as active law until the relevant commencement dates and regulations have been confirmed.
For leaseholders, the important distinction is between reforms that have already become law and those that have only been announced, consulted on or are awaiting further legal steps.
What could change lease extension costs most significantly
The reform with the biggest potential impact on lease extension costs is the abolition of marriage value.
Under the current system, when a lease has less than 80 years remaining, marriage value can form a significant part of the premium paid to extend the lease. The Leasehold and Freehold Reform Act 2024 provides for marriage value to be removed from lease extension and enfranchisement calculations.
However, this change is not yet in force. Bringing the new valuation framework into operation requires further regulations, including the setting of valuation rates used to calculate premiums. Until those provisions take effect, the existing valuation system continues to apply, meaning marriage value remains relevant for qualifying leases below 80 years.
The government has also been considering changes to the valuation rates used in leasehold enfranchisement calculations. These rates, including capitalisation and deferment rates, directly influence the premium leaseholders pay when extending a lease. Any changes will only apply once the relevant regulations are introduced.
What is proposed but not yet law
Further leasehold reform proposals include expanding the use of commonhold, increasing transparency around service charges and introducing additional protections for leaseholders.
Proposals around commonhold and future leasehold ownership have been discussed as part of the government’s wider reform agenda. However, these proposals are not currently law and will depend on future parliamentary progress before they create legal changes.
Similarly, proposals around ground rent restrictions for existing leaseholders should not be treated as confirmed until legislation has completed the required process and the relevant provisions come into force.
The practical position for leaseholders now
For leaseholders with a lease approaching 80 years, waiting for reforms to reduce extension costs carries some risk.
Under the current system, leases below 80 years can become significantly more expensive to extend because marriage value applies. Although future reforms may reduce costs, there is currently no confirmed date for when the new valuation rules will take effect.
Seeking specialist leasehold advice before a lease reaches this point remains the sensible approach.
The key point for leaseholders is to separate what has become law from what has only been announced or proposed. Leasehold reform is progressing, but the financial impact of the biggest changes depends on when the remaining provisions are formally brought into force.
Talk to our team about your leasehold property
This article was originally published by BriefYourMarket and is reproduced here with their permission.
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