Leasehold and Freehold Reform Act 2024 – The Future of Leasehold Extensions

In November 2023, The Department for Levelling Up; Housing & Communities first put forward the Leasehold and Freehold Reform Bill. As of 24 May 2024, this Bill attained Royal Assent and now the Leasehold and Freehold Reform Act 2024 (The Act) has become law. Now that these proposals have become law, it is time to consider some of most significant that will affect property ownership in England and Wales.

Standard Lease Extension – 990 Years

One of the significant changes in the Act is the change to lease extensions. The Act will amend the current provisions of Section 14(1) of the Leasehold Reform Act (LRA) 1967 and Section 56 Leasehold Reform, Housing and Urban Development Act (LRHUDA) 1993, and will allow for a lease over a house or flat to be extended to 990 years instead of 50 years and 90 years for houses flats respectively.

In addition to the increase in lease extension period, you do not need to have owned the property for a minimum of 2 years before the lease can be extended.

This significant increase in the standard lease extension terms will make properties more attractive, and arguably more financially secure to acquire without the worry and requirement of an imminent lease extension due to length of time remaining on the lease.

In addition to the increase in lease extension term, a further change that has been brought about is abolishing the Marriage Value.

Removal of the Marriage Value

The ‘Marriage Value’ of a property is the difference between a leasehold property’s value before and after an 80-year lease is extended. The Marriage Value only comes into effect if the lease on the property had less than 80 years left. Under the previous legislation, the freeholder would be entitled to 50% of the Marriage Value when the leaseholder extended their lease. If the lease on the property had more than 80 years, then the marriage value is valued at zero.

To show how the concept of Marriage value would be calculated:

• A property is worth £100,000 and has a lease with 79 years remaining.

• As the length of the lease is below 80 years, the Marriage Value will come into effect.

• Then let’s assume the tenant then extends the lease, and following the lease extension, the value of the property is now worth £200,000.

• The Marriage Value would be £100,000.

• The leaseholder would, therefore, be required to pay the freeholder £50,000 (50% of the Marriage Value) in addition to the cost of the lease extension which has been also valued.

In practice this meant is that the value of that property would fall significantly if the lease term fell below 80 years. This affected the overall market trend and made properties with shorter leases sell for less than those with longer leases. It also made it more expensive for leaseholders to extend their lease when it was close to expiring, or when it had passed below 80 years.

The new Act has simply abolished the Marriage Value.

This means that leaseholders will be free from the financial consequences listed above, and will no longer be required to pay the additional marriage value on top of the premium.

Freeholders will suffer the most from the new Act as they will no longer be entitled to the additional value of interest that the land gained when the lease was extended due to the loss of being able to recover the marriage value. Whereas leaseholders appear to benefit all around, particularly those who currently have a lease of below 80 years.

Final Thoughts

The impact of this Act on the housing market in England and Wales cannot be understated. As per the official government statistics between 2022-2023, 19% of the English housing stock is comprised of leasehold dwellings. The Act has banned the sale of new leasehold houses. This will prevent this figure from increasing in the future and may steadily decrease. The Act has given leaseholders greater rights, power and protections over their homes.

We can see that the Act aims to give leasehold and freehold owners more equal rights. The increase of the standard lease extension term to 990 years will allow leaseholders to enjoy secure ownership of their home for future generations without the hassle and expense of applying for lease extensions, like their freehold counterparts. This coupled with the abolishment of the Marriage Value ensures that leaseholders will retain a greater share of the increase in value of the property. Furthermore, as leaseholders will no longer have to wait 2 years before they can extend their lease or buy their freehold, we can reasonably expect to see them taking advantage of the all the changes within the Act relatively soon.

Even though we have only touched on a few of the major changes that the Act has brought, and we can see how significantly it has strengthened leaseholders’ consumer rights. That being said, should you or anyone you know require any assistance navigating this new legal landscape, please do not hesitate to contact us.

If you require assistance in regards to any issues relating to Leasehold and Freehold Reform Act 2024, contact our property disputes experts on 0808 271 9413 or request a call back.