The Act received Royal Assent on 24 May 2024 in the 'wash up' of Parliamentary business and seeks to introduce major long awaited reforms to the leasehold sector.
Key provisions
The Act aims to give leaseholders more rights, powers and protections in relation to their homes including making it easier and cheaper for residential leaseholders to extend their lease or to buy their freehold as well as addressing wider rights regarding service charges.
It introduces the following notable reforms affecting lease extension and enfranchisement rights:
- An increase in the standard lease extension terms (from 50 years for houses and 90 years for flats) to 990 years for both houses and flats;
- Removal of the requirement for leaseholders to have owned their house or flat for a minimum period of two years before they can extend their lease or buy the freehold;
- A change to the premium calculation in respect of lease extensions, including the abolition of 'marriage value' for leases below 80 years and future prescription of rates;
- Removal of the requirement for leaseholders to pay for freeholder costs when exercising their enfranchisement rights, with each party having to now cover their own costs in most cases.
- Increasing the permitted commercial property element of mixed-use buildings from 25% to 50% so that more buildings will qualify for enfranchisement or the right to manage.
The Act also includes a ban on the sale of leasehold houses save in exceptional circumstances.
The service charge reforms set out in the Act are aimed at increasing transparency and empowering tenants to hold landlords to account. The key provisions are:
- Extension of a limited form of regulation of fixed service charges;
- Prescribed forms of service charge accounts and annual reports;
- New rights to request information relating to service charges from landlords;
- Effectively banning insurance commissions for landlords;
- Limiting landlords' rights to claim legal costs of Tribunal proceedings from tenants; and
- Introducing a new right for tenants to claim their legal costs of Tribunal proceedings from landlords.
The Act has also implemented a limited number of technical amendments to the Building Safety Act 2022, largely aimed at broadening the scope of the various leaseholder protections set out in that Act. Of most practical importance, the Act has fixed one of the problems caused by the original Building Safety Act provisions so that resident management companies and right to manage companies can now fund remediation contribution order applications by raising service charges from their leaseholders.
Notably, due to the Act being passed at very short notice in the wash up procedure, plans to abolish or cap existing ground rents did not form part of the Act.
Commencement
Only very limited sections of the Act, relating to enforcement of unpaid rentcharges and the Building Safety Act 2022 amendments, will commence on 23 July 2024. However, the bulk of its provisions will come into force on a date appointed by the Secretary of State to be set out in regulations and will therefore be in the hands of the next Government.
In relation to the enfranchisement and service charge provisions, the Act provides for some significant details to be set out in regulations, such as the particular valuation rates that will alter enfranchisement premiums and the precise form of annual service charge accounts and reports.
During the Parliamentary debate on the Bill the Government stated that commencement was likely in 2025-26, indicating that there is likely to be consultation prior to the passing of the regulations fixing the detailed workings of the new regime.
Whilst the Act was rushed through in the wash-up and is now law, the real world effect of the vast majority of these reforms remains to be seen pending secondary regulations and the outcome of the election.
