Leasehold and freehold reform act explainer guide

The world of leasehold and freehold property is complex, with distinct differences that can significantly impact the ownership experience. By understanding the different ownership options and the implications of the Leasehold and Freehold Reform Act 2024, property managers can be better equipped to make more informed decisions. 

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What is a leasehold property?

This is where a property's lease is purchased rather than the property itself. In this case, the freeholder still owns the land and leases out the property for a set period. Leases usually last between 125 to 999 years and are more common for flats rather than houses. 

In a block, the landlord will take responsibility for non-demised shared spaces, such as gardens and hallways, funded by a service charge and possibly ground rent. 

How does a leasehold contract end?

If neither party wishes to end the lease, there is no need for the occupant to leave the property when it expires. This means the tenancy will continue as it was unless the lease is ended. 

A formal written notice can be sent from the landlord to get the court's permission for the eviction of the occupant. If the occupant wants to end the lease they can do so by giving at least a month's notice. 

Want to learn how to better communicate with leaseholders? Read our blog on why this is an investment that pays off.

 

What is a freehold property?

This is the most common way to buy a house in the UK. The occupier owns the house, the land it is built on, and any outdoor spaces. This means they won't have to pay a service charge or ground rent. 

Properties can be checked against the Land Registry for the details of their rights. 

 

What are the differences between leasehold and freehold?

These include: 

The charges are not set in freehold, so the occupier is in charge of the property's upkeep. For leasehold, ground rent should be paid as well as other service charges. 

For freehold, the occupier owns the property and the land it’s built on. Meanwhile, with leasehold, the occupier owns the property for a set period, which doesn't include the land. 

A freehold property can be remortgaged, whereas leasehold properties need to have at least 70 years left on the lease. 

The occupier owns the gardens on a freehold property, but with a leasehold, the landlord is responsible for this. 

What is a leaseholder deed of certificate?

The leasholder deed of certificate is the way to demonstrate that a leaseholder qualifies for protections under the Building Safety Act. 

A leaseholder can choose to complete and send a deed of certificate to their landlord whenever they wish, but most commonly the landlord will request one. This can either be because the leaseholder is selling their property or there is a defect in the building. 

If a landlord does require a deed of certificate, the tenant must be notified in writing by a pre-paid first-class letter and by email. They must also give them at least eight weeks to provide the certificate and a further four weeks if requested. 

This is just a short explanation. If you need to know more about the leaseholder deed of certificate, we have an explainer guide on the subject. 

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Leaseholder Deed of Certificate explainer guide

What is the Leasehold and Freehold Reform Act 2024?

  • prohibit the grant or assignment of certain new long residential leases of houses
  • amend the rights of tenants under long residential leases to acquire the freeholds of their houses
  • extend the leases of their houses or flats 
  • collectively enfranchise or manage the buildings containing their flats
  • give such tenants the right to reduce the rent payable under their leases to a peppercorn 
  • regulate the relationship between residential landlords and tenants
  • regulate residential estate management
  • regulate rentcharges
  • amend the Building Safety Act 2022 in connection with the remediation of building defects and the insolvency of persons who have repairing obligations relating to certain kinds of buildings. 
  • Making it cheaper for some leaseholders to  extend their lease or buy their freehold. 
  • Increasing the standard lease extension term to 990 years for flats and houses. This will be up from 50 years in houses and 90 years in flats. 
  • Scrapping the presumption that leaseholders pay their freeholders' legal costs when challenging poor practice. 
  • Banning the sale of new leasehold houses so that, other than in exceptional circumstances, every new house in England and Wales will be freehold from the outset. 
  • A new legal right to buy out the ground rent without extending the lease at the same time. 
  • Setting a maximum time and fee for home buying and selling information, which will make the buying and selling of a leasehold property easier. 
  • Replacing opaque and excessive building insurance commissions with transparent and fair handling fees. 
  • Making it cheaper for leaseholders to exercise their enfranchisement rights. 
  • Making freeholders issue bills in a standardised format, which will give leaseholders greater transparency over their service charges. 
  • Granting homeowners on private and mixed tenure estates comprehensive rights of redress. This will mean they receive more information about what charges they pay. 
  • Removing the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy their freehold. 
  • Extending access to redress schemes for leaseholders to challenge poor practice. 
  • Allowing leaseholders to appoint a managing agent of their choice by making it easier and cheaper for leaseholders to take over management of their building. 

When will the Leasehold and Freehold Reform Act 2024 become law?

The Leasehold and Freehold Reform Act received Royal Assent in May 2024, meaning it's now law. However, most of its contents will not come into effect until 2025/26 because they require secondary legislation. 

 

Conclusion

The Leasehold and Freehold Reform Act marks a significant step towards a fairer property market for leaseholders. By extending lease terms, reducing ground rent burden, and increasing transparency in service charges, this legislation aims to bring leasehold ownership closer to freehold in terms of security and control. 

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Want to hear more about the changes being implemented?

Watch our webinar with Nigel Glen and Cassandra Zanelli. 

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