The Leasehold and Freehold Reform Act 2024 A Summary by Brethertons

Below, you will find a summary of each of the key reforms made by the Leasehold and Freehold Reform Act 2024 (“the Act”), in the order that they appear in the Act (or close to it).

All but four of the sections will come into force on a date to be specified in secondary legislation. Four sections (one relating to estate rentcharges and the others effecting changes to the Building Safety Act 2022) will come into force on 24th July 2024.

This is intended as a cursory overview only. There is a lot of detail to unpick, particularly with regard to valuation methodology.

Ban on Leasehold Houses

1. Finally implementing the 2017 promise, there is a ban on the grant of new long leases of houses, with some limited exceptions (and further provisions relating to marketing and warning notices in respect of leases which fall within those exceptions). The limited exceptions include leases granted out of historic leasehold estates, community housing leases, retirement housing leases, leases of certain National Trust properties, shared ownership leases, home finance plan leases, certain extended leases and agricultural leases. Of the “permitted leases”, some have to be certified by a tribunal, others are capable of self-certification.
2. There is a right to acquire the freehold or intermediate lease of a house where the lease is granted in contravention of the ban.
3. Enforcement powers include a fine of up to £30,000.

Leasehold Enfranchisement (Statutory Claims to Acquire the Freehold of Blocks and Houses and Lease Extensions)

1. There will no longer be a two year ownership condition for claims to acquire a new (extended) lease of a flat under the LRH&UDA 1993.
2. Repeated collective enfranchisement and lease extension claims (within a period of 12 months following the withdrawal of deemed withdrawal of an initial notice or notice of claim) will no longer be prohibited.
3. The non-residential threshold for collective enfranchisement claims will be increased from 25% to 50% (so premises containing non-residential parts exceeding 50% rather than 25% of the internal floor area of the premises (excluding common parts) will be excluded from the right to collective enfranchisement).
4. There are other (less headline grabbing) changes to eligibility:
   1. It will no longer be possible for a landlord to contest a claim under the LRA 1967 (to acquire the freehold of a leasehold house) or a collective enfranchisement claim on redevelopment grounds;​
   2. The residential restriction (which has limited application) and public purposes exception in the LRA 1967 have been removed;
   3. There is a new exception for community housing providers;
   4. The prohibition on lease extension claims by certain sub-lessees has been removed (under both the LRA 1967 and the LRH&UDA 1993);
   5. The National Trust exception is watered down so that there is no right to acquire the freehold of “inalienable National Trust property”, but there may be a right to an extended lease (depending on the circumstances).
5. With regard to the acquisition of intermediate leases and common parts leases, as part of a collective enfranchisement claim, a number of complex changes are made to the rights of the nominee purchaser. Broadly speaking:
   1. the nominee purchaser must acquire part of an intermediate lease that is superior to a lease held by a participating leaseholder; can choose not to acquire any part of an intermediate lease that is superior to a flat that is held by a non-participating tenant; and may not acquire any part of the intermediate lease which is superior to an interior lease that is owned by the same person as the intermediate lease, where the intermediate lease has a term that is greater than the inferior lease.
   2. The nominee purchaser is not obliged to acquire the whole of a lease of common parts and may acquire any part of the lease, provided the acquisition is reasonably necessary for the proper management or maintenance of those common parts
6. In the case of a collective enfranchisement claim, the landlord can be required to take a leaseback of non-participating flats (presumably, in order to reduce the price).
7. In the case of statutory lease extensions (for flats and houses), the new lease will have a term of 990 years plus the unexpired term of the previous lease (rather than 90 years for flats and 50 years for houses).
8. A new (extended) lease of a house (granted pursuant to a lease extension claim under the amended LRA 1967) with be at a peppercorn rent, subject to the payment of a premium.
9. There are a number of significant and complicated amendments to the method for determining the price payable for a freehold of a block or house and the premium payable for a lease extension (the general objective of which is to reduce the cost to the leaseholder), which will require careful scrutiny. These include:
   1. The removal of marriage value as a component of the price / premium;
   2. Ground rent assumed to be capped at 0.1% of the market value of the premises being valued for the purpose of determining the capitalised value of the ground rent;
   3. Capitalisation rates to be prescribed by secondary legislation;
   4. Deferment rates to be prescribed by secondary legislation.
   5. However, the Act does not appear to prevent the freeholder from seeking to include in the price development value, or some other value that falls outside the strict confines on the “standard valuation method”, in respect of parts of the building that are not flats or appurtenant property.
10. There will be a new free standing right for leaseholders of flats to reduce their ground rent to a peppercorn (without having to pay to extend the term), subject to the payment of a premium.
11. Landlords will only be able to recover their costs in limited circumstances; for example:
    1. Where the claim fails (in certain circumstances);
    2. Where the price or premium is less than (a) the prescribed amount (to be prescribed by secondary legislation / Regulations) and (b) the price or premium, in which case the landlord can recover the difference between the landlord’s costs and the price or premium.
12. The First-tier Tribunal (Property Chamber) will have a much wider jurisdiction and will be able to deal with issues that were previously only able to be dealt with by the Court; including, for example, questions relating to eligibility and/or the validity of a claim.

The right to manage

1. The non-residential threshold will be increased from 25% to 50% (so premises in respect of which the internal floor area (excluding common parts) of non-residential parts of the building exceeds 50%, rather than 25%, will be excluded from the right to manage)
2. Cost recovery is far more limited:
   1. Litigation costs will not be recoverable at all;
   2. The FTT may (at its discretion) order that non-litigation costs incurred in consequence of a claim notice are recoverable if the claim fails, the RTM company acts unreasonably in giving the claim notice or not withdrawing it, and the costs are reasonably incurred.

Service Charges and the Management of Residential Leasehold Property

The use of the word “landlord” in the following provisions includes anyone who has a right to enforce payment of a service charge, including RMCs and RTM companies:

1. Some of the protections in the Landlord and Tenant Act 1985 are extended to fixed service charges (e.g. the requirement for a service charge demand to be accompanied by a summary of rights and obligations), but not s.19 (reasonableness), s.20 (consultation requirements) or s.20B (the 18 month time bar). This may be seen as disappointing in the light of the comments of the Supreme Court in Arnold v Britton [2015] UKSC 36, which hinted that Parliament should consider legislating to protect leaseholders against unreasonable fixed service charges.
2. Section 20B(2) notices must contain specified content (including the leaseholder’s proportion of the costs and the an estimated date at which the costs will be demanded as a service charge) and be in a prescribed form (to be set out in secondary legislation / Regulations).
3. Service charge demands must contain specified content, and be in a prescribed form (to be set out in secondary legislation / Regulations).
4. Landlords will have a duty to provide service charge accounts, comprising a written statement of account, in a specified form and manner (to be set out in secondary legislation / Regulations), and containing a written report prepared by a qualified accountant, prepared in accordance with specified standards and containing a statement by the accountant in a specified form and manner (again, to be set out in secondary legislation / Regulations). Landlords must provide adequate invoices, receipts, or other documents to the accountant. The silver lining: landlords will be able to recover a “fair and reasonable” contribution towards the costs that they incur in connection with the production of the annual accounts.
5. Landlords will have a duty to provide “annual reports” in respect of “other matters which the appropriate authority considers are likely to be of interest to a tenant, whether or not they directly relate to service charges or to service charges arising in the period” (again, to be set out in secondary legislation / Regulations).
6. Leaseholders will have a wide ranging right to obtain information from their landlord on request, about service charges; or services, repairs, maintenance, insurance, or the management of dwellings. There will also be additional, new, specific rights to obtain information about insurance.
7. The obligations of landlords relating to service charges (such as the obligation to supply information, or the obligation relating to annual accounts) will now be capable of civil enforcement, e.g. by way of an application for an injunction, or order for specific performance, or damages (as opposed to only being capable of enforcement by criminal penalty, which is the current position).
8. Landlords will be prevented from recovering costs in connection with the arrangement or management of insurance, unless it is a “permitted insurance payment” (an effective ban on insurance commission). The precise nature of a “permitted insurance payment” will (you will be starting to see a pattern here) be the subject of secondary legislation.
9. Landlords will be obliged to publish administration charge schedules; namely, a document setting out the administration charges which the landlord considers to be payable, the amount of the administration charge or how the administration charge will be determined (if the precise amount cannot be specified). Failing to publish an administration charge schedule, or include an administration charge on the schedule, will mean that that administration charge cannot be recovered. Leaseholders will also be able to sue the landlord for damages (not exceeding £1,000) for failing to publish an administration charge schedule.
10. Landlords will be prohibited from recovering litigation costs as a service charge or as an administration charge, unless they obtain an order from a Court or Tribunal permitting the recovery of such costs. “Litigation costs” means “any costs incurred, or to be incurred, by a person in connection with relevant proceedings to which they are party”. “Relevant proceedings” means proceedings before a court or tribunal to which the landlord and tenant / leaseholder are a party and which concern a lease of a dwelling to which the landlord and tenant / leaseholder are a party. The Secretary of State may create Regulations which specify exceptions to this rule. One exception which was mooted was an exception for RMCs and RTM companies, but it remains to be seen what exceptions will be set out in secondary legislation, if any.
11. Leases will contain an implied term which gives the leaseholder the right to apply to a court or tribunal for an order entitling that leaseholder to recover their litigation costs from their landlord.
12. Where a landlord receives a “sales information request” from a tenant / leaseholder (the content of which will be specified in secondary legislation, but may include, for example, a request for an LPE1, or similar), it will need to be provided within a specified timeframe and at a specified cost (to be specified in secondary legislation – 15 days and £200 plus VAT have been discussed previously, but that was a few years ago).

The Management of Freehold Houses and Estate Rentcharges

1. For the first time, the Act creates protections and limitations for freehold house owners who contribute towards the cost of maintaining common areas. Such contributions are described as “estate management charges”:
   1. Estate management charges are only recoverable to the extent that the works and services underpinning those charges are reasonably incurred and to the extent that any demand for an advance contribution is reasonable in amount.
   2. There are consultation requirements, similar to s.20 (with the consultation threshold to be set by secondary legislation).
   3. There is an 18 month time limit, similar to s.20B.
   4. The FTT will have the jurisdiction to determine the payability and reasonableness of estate management charges.
   5. As with leasehold properties, there will be new duties relating to annual accounts, annual reports, rights to information and administration charge schedules.
   6. Administration charges will be subject to similar limitations to those concerning leasehold properties (e.g. relating to reasonableness).
   7. The FTT will have a power to appoint a substitute manager, if a “notice of complaint” and “final warning notice” are given, without the matters specified in that notice being remedied, and it is “just and convenient” to make an order.
   8. Codes of Practice (such as the RICS Code) are extended to estate managers.
   9. There will be similar duties relating to sales information requests to those that are proposed in relation to leasehold properties.
2. There are new requirements and limitations in relation to estate rentcharges. For example, the rentcharge owner cannot exercise their enforcement rights under s.121 of the Law of Property Act 1925, unless the rent owner and served the landowner with a notice demanding payment of the arrears (among other things), which must set out or be accompanied by the instrument creating the rentcharge. These estate rentcharge provisions will come into force on 24th July 2024.

Other

1. There are several amendments to the Building Safety Act 2022, although not perhaps as far reaching as some would have hoped. These include:
   1. Amendments to sections 123 and 124 of the BSA 2022 (remediation orders and remediation contribution orders) to clarify that a remediation order and a remediation contribution order can include the cost of interim measures designed to mitigate a building safety risk (such as employing a waking watch, upgraded fire alarms or installing a sprinkler or mist suppression system).
   2. An amendment to Schedule 8 of the BSA 2022 to clarify that the bar on the recovery of legal costs at Paragraph 9 of Schedule 8 does not apply to RMCs and RTM companies who make an application for a remediation contribution order
2. There will be a new leasehold and estate management redress scheme. Landlords (including RMCs and RTM companies) and estate managers will be required to join the scheme, which will make provision for a complaint against a member of the scheme made by or on behalf of a current or former owner of a dwelling. As with a lot of other provisions in the Act, the detail will need to be specified by secondary legislation.

If you have any questions, please contact our specialists Roger Hardwick and Verity McMahon or alternatively you can join our upcoming webinar being held on 5^th June in association with Flat Living by registering here.