The Leasehold and Freehold Reform Bill 20244 Dec 2023 | Amber Krishnan-Bird
Table of Contents
As of the 27th November 2023 “Bill 13” has been introduced in the House of Commons. The passage of the bill could still be lengthy and of course drafting could change throughout the passage of the proposed bill however the headlines of Part I of the Act and what these could mean for leaseholders is as follows:
The draft includes the removal of the existing requirements to own a property for 2 years to be able to extend.
Effects of the Leasehold and Freehold Reform Bill on Collective Enfranchisements
- The non-residential area limit under the 1993 Act will be increased from 25% to 50% which will open up leasehold enfranchisements for more buildings than the current legislation.
- The draft includes a new right for leaseholders to require their landlord to take a ‘leaseback’ of any unit that is not let to a participating tenant (which would include commercial units) and this should benefit leaseholders participating in a collective enfranchisement claim by removing value of the unit removed from the premium they must pay for the freehold.
Effects of the Leasehold and Freehold Reform Bill on Lease Extensions
- Lease extensions under the draft bill will be granted for longer terms – with extensions of 990 years rather than 90 years. This should mean that leases only need to be extended once for leaseholders.
- The draft bill also removes the requirement for marriage value to be paid, caps the treatment of ground rents in the valuation calculation at 0.1% of the freehold value and allows the government to prescribe the rates used to calculate the enfranchisement premium. On the face of it this should make lease extensions cheaper – especially for those with leases that have fallen under 80 years and if the government raise existing deferment rates – however it will dependent on the rates that the Government prescribe. A current concern is that the setting of the rates could be used to balance the effects for freeholders of the Government abolishing marriage value.
Other Effects of the Leasehold and Freehold Reform Bill
- The draft bill amends the existing statutory redevelopment break rights under the existing acts to give freeholders consistent rights for houses and flats. Break rights for a freeholder will now be available during the last 12 months of the original lease or the last five years of each period of 90 years of a 990-year lease extension – so freeholders redevelopment rights have been extended to match the longer lease lengths being granted.
- The draft bill includes a new right for those that have leases long leases that have existing ground rent to buy out their ground rent without having or needed to also extend the term of their lease or buying the freehold.
- The draft bill also sets out a new cost regime for enfranchisements and lease extensions and under the new bill each party will generally bear their own costs.
The proposed amendments are significant and make fundamental changes to leaseholders existing rights in the 1967 and 1993 Acts. The biggest question is still when will this new Bill be passed and enacted? And whether the passage could be slowed down by potential litigation from large Landlords?
And to this we still do not have the answers but a draft bill is a good insight into what the Government are hoping to achieve in 2024.
Currently our advice still remains that if you have a lease with approaching or under 80 years remaining time is likely to still be of the essence and we would recommend you consider extending your lease as soon as possible. Those with 85 years or more may also still want to consider extending their lease in the short term depending on their plans for the property although waiting for the new legislation is likely to be the best course of action currently.
If you have any queries on any of the above please contact Guy Osborn or Amber Krishnan-Bird.
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