Leasehold and Freehold Reform Act 2024: Implementation

We have been constrained from implementing the 2024 Act’s enfranchisement measures to date by the fact that legislation contains a small number of specific flaws. These include a loophole in the new valuation process which means that some people could avoid paying the correct price for their lease extension or freehold acquisition, thereby compromising the integrity of the amended method, and an omission that would deny tens of thousands of shared ownership leaseholders the right to extend their lease with their direct landlord, given that the providers in question do not have sufficiently long leases to grant 990-year extensions. The King’s Speech 2026 confirmed that fixes to these flaws will be included in the forthcoming commonhold and leasehold reform Bill.

To ensure that we can commence the 2024 Act’s enfranchisement provisions as soon as possible following Royal Assent of the commonhold and leasehold reform Bill, the Government need to have determined the prescribed rates that will be used to calculate the enfranchisement premium and to have confirmed their approach to the recovery of non-litigation (process) costs. To inform final decisions in respect of both matters, we are today launching two technical consultations.

The first consultation, which can be found at https://www.gov.uk/government/consultations/leasehold-enfranchisement-valuation-rates, concerns valuation rates. The new method for calculating the price of a statutory lease extension or freehold acquisition provided for by the 2024 Act 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 Government to prescribe through secondary legislation the two rates used to calculate the enfranchisement premium.

Within the parameters defined by the 2024 Act, the consultation seeks evidence and views to inform the setting of both the deferment and the capitalisation rates. Our aim is to set rates that reasonably find the present value of the “reversion” and “term” elements of the premium while providing simplicity, certainty and stability for those involved in enfranchisement claims.

The second consultation, which can be found at https://www.gov.uk/government/consultations/leasehold-enfranchisement-process-costs, concerns non-litigation (process) costs. At present, leaseholders are forced to pay their landlords’ process costs when extending their lease or buying their freehold. The 2024 Act ends the recovery of non-litigation costs by landlords with a small number of exceptions, as recommended by the Law Commission, to account for low-value claims, failed claims and where there are leaseback arrangements in place.

The consultation seeks evidence and views on the amount of the landlords’ process costs that should be payable by leaseholders where one of the exceptions in the 2024 Act applies and also on the merits of a new exemption (subject to future legislation) designed to support resident-led management organisations, and possibly some other organisations, which might otherwise be unable to fund the costs associated with an enfranchisement claim.

Both consultations will run for 10 weeks. While each is technically complex and demands a degree of specialist knowledge, we strongly encourage input from all parties affected, including individual leaseholders and freeholders, so that the Government’s final decisions on valuation rates and non-litigation (process) costs are informed by views beyond simply enfranchisement professionals.

I want to reiterate that no amount of litigation will deter the Government from progressing their ambitious leasehold and commonhold reform agenda. We robustly defended the challenges brought to the enfranchisement provisions of the 2024 Act last year and warmly welcomed the High Court’s judgment which comprehensively dismissed them. We will defend any appeals just as tenaciously.

The forthcoming commonhold and leasehold reform Bill will contain a number of provisions that provide existing leaseholders with greater rights, powers and protections over their homes, not least the abolition of leasehold forfeiture and its replacement with a modern, proportionate lease enforcement system that addresses breaches fairly, with appropriate safeguards and judicial oversight. However, providing urgent relief to existing leaseholders struggling with the cost of living requires us to switch on a number of remaining measures from the 2024 Act.

The “Strengthening leaseholder protections over charges and services” consultation undertaken last year sought views on measures contained in the 2024 Act to drive up the transparency of service charges and reform the litigation costs regime, as well as a number of further reforms outside the scope of that Act including mandating reserve funds, introducing mandatory qualifications for managing agents and improving the section 20 major works regime. We received a very large number of thoughtful and detailed responses to it from leaseholders, landlords, managing agents and representative organisations. The insight provided has been invaluable in shaping our approach.

Having considered carefully the feedback received to this consultation, as well as the separate consultation undertaken in respect of permitted insurance fees, we are today publishing a Government response to those proposals in the consultation relating to part 4 of the 2024 Act, which can be found at https://www.gov.uk/government/consultations/strengthening-leaseholder-protections-over-charges-and-services-consultation.

That response confirms that the Government will now proceed to implement measures to drive up the transparency of service charges, including standardised service charge demand forms, an annual report and enhanced leaseholder rights to obtain information on request, and reform the litigation costs regime by requiring court or tribunal approval for the recovery of litigation costs through the service charge and giving leaseholders a new right to enable them to recover landlord costs in certain circumstances. We will also look to introduce a transparent and fair permitted building insurance payment. These measures will work in tandem to help leaseholders better understand what they are paying for and empower them to challenge charges where they believe them to be unreasonable.

This impactful package of reforms will be laid in Parliament later this year through a minimum of five complementary statutory instruments, at least two of which will be made under the affirmative procedure. We will provide a separate response in due course in relation to the further reforms consulted upon that are outside the scope of the 2024 Act, including those that concern the regulation of managing agents.

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