The Drip-Drip Approach Of The New Leasehold Reform

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In January 2025, Matthew Pennycook, Minister of State for Housing and Planning, confirmed that from February 2025, leaseholders will be able to exercise their right to extend their lease or buy their freehold  immediately upon purchasing a leasehold property, rather than having to wait two years.

This change is aimed at streamlining transactions by eliminating the need for sellers to serve notice and assign the benefit to the buyer which will avoid extra legal costs in transactions. However, delays at the Land Registry, which is currently experiencing significant backlogs in registering property transactions, mean that there may still be a waiting period before notice can be served.

Is now the right time to extend the lease or buy the freehold?

A question remains: is it the best time to extend a lease or purchase the freehold? We are still in a state of limbo, uncertain as to when the remaining leasehold reforms will take effect. While a timeline exists, progress has been slow due to serious issues in the legislation which need to be rectified by further primary legislation. Additionally, there are an estimated 25-30 pieces of secondary legislation needed to fully implement the reforms.

Adding further complexity, freeholders have recently been granted leave to apply for judicial review to challenge the Leasehold and Freehold Reform Act. This was anticipated, as the new reforms have already had a significant financial impact on freeholders – eliminating their ability to charge ground rent on new or extended leases and threatening income streams generated when leases are renewed. The crux of the legal challenge is whether these changes amount to confiscation of property rights?

The freeholders argue that provisions in the Leasehold and Freehold Reform Act, namely:

The cap on existing ground rents,
The payment of marriage value when enfranchisement rights are exercised,
The removal of freeholder's rights to recover reasonable legal and valuation costs on enfranchisement or lease extensions claims breached landlords’ private property rights under the Human Rights Act 1998.

The High Court has deemed this an arguable case, and the judicial review is scheduled for July 2025. If the freeholders are successful, the case could ultimately reach the Supreme Court, further delaying the implementation of the reforms.

Upcoming Developments

This summer, the Government plans to hold consultations on the valuation rates used to calculate the cost of enfranchisement premiums and consumer protection provisions concerning service charge transparency and legal costs for homeowners on freehold estates. These consultations will be crucial in shaping the final version of the legislation.

Additionally, the Government intends to introduce a draft Leasehold and Commonhold Reform Bill in the second half of 2025. This bill aims to phase out leasehold structures altogether, replacing them with the less-capitalist commonhold – a system where flat owners own their ‘units’ outright. While leasehold houses have already been banned, the Government’s ultimate goal is to extend this prohibition to leasehold flats, representing a radical shift in property law.

Future of Leasehold Reform

Despite the legal challenges and the significant financial losses faced by freeholders, it is still likely that these reforms will eventually come into force. In the long term, this could make short leases, which are often unmortgageable, easier and more affordable to extend. However, given the uncertainties surrounding judicial reviews, secondary legislation, and implementation timelines, leaseholders must weigh their options carefully before making any decisions on lease extensions or freehold purchases.

For now, the reforms remain a work in progress – gradually unfolding, step by step, in a process that seems more drip-drip than decisive overhaul.