The Leasehold and Freehold Reform Bill (“the Bill“) proposes significant amendments to the current legislation, LHRUDA 1993 which governs lease extensions of flats, and the Leasehold Reform Act 1967 (“LRA 1967”) which governs houses, and enfranchisement rights.
The full Bill can be downloaded here: Leasehold and Freehold Reform Bill – Parliamentary Bills – UK Parliament
Below is a high-level summary of some of the substantive proposed changes:
Tenants must have been the registered owner of the property at Land Registry for at least two years before they can extend their lease.
This qualifying length of ownership criteria is being removed. A tenant will no longer have to show two years’ proof of ownership.
Sub-lessees of long leases currently do not have the right to extend their leases.
Sub-lessees will have the right to extend their leases through the removal of clause 16(4) LRA 1967.
A House is entitled to a new lease of 50 years under the LRA 1967.
A flat is entitled to a new lease of 90 years under LHRUDA 1993.
The length of a new lease extension for a flat or a house, will be 990 years, in addition to the original term.
Valuation for lease extension purposes is complex, and best left to qualified valuers.
The concept of lease extension valuation is changing in a number of ways to be more tenant-friendly overall.
Marriage value will not be taken into account for valuation purposes.
This net result is that it will be cheaper for tenants to extend their leases.
At least 75% of the Qualifying Building must be residential and not commercial. If more than 25% of the floorspace is commercial, then tenants may not collectively enfranchise.
The commercial threshold is increasing to 50%, meaning more tenants will be able to exercise these rights.
Leaseholders do not have the right to collectively enfranchise when the building is a conversion into four or fewer flats and the same person has owned the freehold since before the conversion and they (or a member of their family) have lived in one of the flats for the past 12 months.
A landlord can also seek to frustrate a claim for extension or enfranchisement on the basis that he wishes to re-occupy the premises as his main residence or the main residence of an adult family member, or on grounds that he wishes to redevelop the premises.
A landlord can no longer seek to oppose a claim on the basis that he or she is or will be a resident landlord (or a member of their family will resident) as s.18 LRA 1967 will be omitted.
A landlord can also no longer seek to oppose a claim on the basis that the land is required for public purposes, as s.28 LRA 1967 will be omitted, or on grounds of redevelopment as s.23 and s.47 of LRHUDA 1993 will be omitted.
Tenants must have been the registered owner of the property at Land Registry for at least two years before they can extend their lease.
This qualifying length of ownership criteria is being removed. A tenant will no longer have to show two years’ proof of ownership.
If a claim for extension is made then withdrawn by the tenant (either expressly or impliedly), then a tenant must wait a full year from the date of withdrawal before making a new claim. This means the premium payable for the extension is likely to have increased given that the remaining term length is now one year shorter.
This provision has been removed so that a tenant can make a new claim immediately after any withdrawal.
The Bill will also ban the sale of any new leasehold houses, except in rare circumstances, so that every new house will be freehold from the outset.
One other item of note being discussed at the moment is the capping of ground rents in existing leases. This consultation closes on 21 December 2023.
Overall, the proposed changes to the existing legislation will make the process of extending a lease and enfranchising (purchasing the freehold of a block of flats) more tenant-friendly.
The changes to valuation calculations may have significant impacts on landowners with a portfolio of leasehold properties, as the value of their interest (due to the way the premium is calculated for lease extensions) may decrease overnight if this Bill is enacted in its current form. This is particularly the case for local authorities, who may wish to take valuation advice on the potential ‘loss’ of value.
However, it is important to remember that the Bill is only a first draft and must go through 12 stages of review and consideration before it becomes law, and so it is likely that the final provisions in the enacted Act will vary from the proposals set out above.
We will continue to monitor the progress of the draft legislation with interest.
