Series: Leasehold and Freehold Reform Act 2024 Part 1

Part 1: Ban on new leasehold houses

The Leasehold and Freehold Reform Act 2024 (LAFRA 2024) is a significant piece of legislation aimed at improving the rights of residential leaseholders in England and Wales. LAFRA 2024 received Royal Assent on 24 May 2024 but is not yet in force (save for a limited number of provisions) and the Government is currently drafting secondary legislation to flesh out the details.

LAFRA 2024 targets several features of leasehold housing, notably leasehold houses, lease extensions, enfranchisement, right to manage and regulation of leaseholds.

This article focuses on Part 1 of the legislation and outlines the ban on new leasehold houses.

Leasehold houses

In 2022-2023 there was an estimated 4.77 million leasehold properties in England, 28% of which were leasehold houses. Leasehold owners have faced increasing challenges in the form of escalating levels of ground rent and service charges, restrictions in the manner in which they can deal with their properties, building safety concerns and the subsequent difficulties with selling and remortgaging their interests.

The Government has been vocal about its mission to protect leaseholders from unscrupulous practices and Part 1 of LAFRA 2024 aims to tackle problems specifically faced by the leasehold houses sector (for example requiring consent from and paying fees to a freeholder in order to build an extension) by banning the granting (or assignment) of new leasehold houses, save for in a limited number of circumstances. This is part of the Government’s overall strategy to move towards freehold being the default tenure for new houses.

Scope of the ban

When it comes into force, the legislation will prohibit the granting of (or entering into an agreement to grant), and in some cases the assignment of (or entering into an agreement to assign), a new long residential lease of a house, save in the case of “permitted leases” as set out in Schedule 1 to the legislation.

LAFRA 2024 defines what is meant by a “long residential lease of a house” and in its simplest form, it is a lease for a term of more than 21 years for a separate set of premises that has been constructed or adapted for use as a dwelling and which can be occupied under a lease as a separate dwelling.

“Permitted leases”

There are two categories of permitted leases under the legislation, and these are set out in Part 1 and Part 2 of Schedule 1.

Part 1 of Schedule 1 lists the categories of permitted leases that require the developer or seller to apply for and obtain a “permitted use certificate” from the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

The permitted leases under Part 1 of Schedule 1 include:

• leases granted out of pre- 22 December 2017 leasehold estates;
• community housing leases;
• retirement housing leases;
• leases of certain National Trust property; and
• leases granted by the Crown.

Part 2 of Schedule 1 lists the categories of permitted leases that qualify for self-certification and these include:

• leases agreed before the ban comes into force;
• shared ownership leases;
• home finance plan leases;
• extended leases; and
• agricultural leases.

The introduction of the certification requirement is designed to avoid abuse by developers and sellers, and it is hoped it will enable buyers to proceed through transactions with more confidence.

Regulation of permitted leases

Once certified, permitted leases will still be regulated and developers, sellers, marketers and advisors will have to comply with mandatory requirements such as:

• the provision of “permitted lease information” within marketing materials (essentially a statement identifying which category or categories of Schedule 1 the permitted lease falls under);
• complying with transaction warning conditions (issuing warning notices stating the lease is a permitted lease and what kind, and the proposed tenant  must provide a notice of receipt, both of which must be endorsed on the lease or agreement for lease); and
• the inclusion of new Land Registry prescribed clauses (failure of which would result in a restriction on title being entered and which would prohibit future transfers, unless the lease was varied.)

The aim of the regulations is to ensure that the leasehold nature of the interest is brought to the attention of the proposed tenant as there have been many instances of mis-selling and buyers being under the false impression that they were purchasing a freehold house.

Redress for breach of ban

Failure to comply with the provisions of Part 1 of LAFRA 2024 will not affect the validity of the lease (or the assignment) as the rights of tenants must be protected. Redress will be in the form of tenants acquiring the right (which must be separately exercised) to acquire the freehold of the house at no extra cost. This right cannot be contracted out of.

In addition, those in breach (which can include estate agents engaged in marketing)  can face fines of no less than £500 and up to £30,000.

When does the ban come into force and who will it impact?

At present the provisions referred to above are still not yet in force and the Secretary of State will issue secondary legislation to enact the provisions of LAFRA 2024. At the time of writing this is anticipated to be at some time in 2025/2026.

The legislation will impact existing freeholders of houses, developers (though there has been a decline in the number of new build leasehold houses since the Government announced the ban would be introduced) and those that are entitled to grant/assign permitted leases under Schedule 1 of the Act, such as those operating in the care home sector.

It is important to note that even if the ban does not apply, there will be procedural changes that must be complied with.

How we can help

We are in an era of legislative flux that will have a dramatic impact on landlords and tenants, both at the long leasehold and assured shorthold tenancy ends of the spectrum. Our Property Litigation team has considerable expertise in this area of law and we can help navigate you through the legislative changes to enable you to remain compliant and attain your objectives.

If you require assistance, please contact the team on 020 3814 2020 or send an email to litigation@blasermills.co.uk.