Series: Leasehold and Freehold Reform Act 2024 Part 2

Part 2: Enfranchisement and Lease Extensions

Leaseholds are a depreciating asset, making enfranchisement (acquiring the freehold) or lease extension attractive options for leaseholders seeking control and cost savings. However, the current system is complex and costly.

The Leasehold and Freehold Reform Act 2024 (LAFRA 2024), which received Royal Assent on 24 May 2024, introduces major reforms to simplify and reduce the cost of leasehold enfranchisement and lease extensions. Although most provisions are not yet in force, the changes are already influencing market behaviour.

Key reforms for leaseholders

LAFRA 2024 lowers barriers to participation by:

• Removing the two-year ownership requirement (effective 31 Jan 2025): Leaseholders can bring claims immediately post-acquisition, though the notice of claim must be brought by the legal owner of the leasehold interest and therefore Land Registry processing times in registering the transaction and updating the registered proprietor on the title may affect timing.
• Eliminating restrictions on repeat claims: Leaseholders can now reapply to collectively enfranchise or for a lease extension without waiting 12 months from an earlier claim that failed to complete.
• Raising the non-residential internal floor area (excluding common parts) threshold from 25% to 50% for collective enfranchisement claims from 25% to 50%, allowing more mixed-use buildings to qualify.
• Extending statutory lease terms from 90/50 years to 990 years for flats and houses respectively.
• Introducing peppercorn rent for houses, aligning them with flats.

Premiums and costs

A new valuation method is expected to abolish marriage and hope value, potentially lowering premiums – especially for leases with less than 80 years left to run and with high ground rent. It may be that some leaseholders will pay higher premiums under the new legislation.

Another potential factor impacting premiums is that leaseholders may be required to purchase intermediate interests.

Transaction costs are expected to also reduce, with each party generally bearing their own costs. Landlords can only recover costs in limited circumstances such as where the tribunal has made a costs order or in low value cases.

Shared ownership leases

Leaseholders will gain lease extension rights but generally cannot acquire the freehold of a house.

Impact on landlords

• Loss of opposition rights: Landlords can no longer block claims based on redevelopment or reoccupation, though a limited right to claim possession on the grounds of redevelopment will be introduced.

• Mandatory leasebacks: Leaseholders can require landlords to take 999-year leasebacks at peppercorn rent for non-participating units, reducing premiums further.

Timing and uncertainty

While leaseholders are delaying claims in anticipation of lower premiums and costs, the government has yet to complete its consultation on lease extension rates and still has some way to go before LAFRA 2024 will come into full force and effect. A Judicial Review currently being brought by landowners in the High Court may further delay implementation. Currently, the only certainty is uncertainty and all the while the leasehold clock continues to run down.

How we can help

Our Property Litigation team is well-versed in enfranchisement and lease extension claims and ready to guide you through the evolving legal landscape.

If you require assistance, please contact the team on  0203 814 2020 or send us an email to litigation@blasermills.co.uk.