How do landlords benefit from the new Leasehold and Freehold Act?

The Leasehold and Freehold Reform Act (England and Wales) was passed in May 2024, just before Parliament was dissolved ahead of the July General Election. As such, there wasn’t time for the Conservative Government to decide when the various measures would come into force.

So, the first change within the Act only became law at the end of January this year, when the Housing Minister signed off on regulations to remove the two-year ownership rule. This means leaseholders can now extend their lease or buy the freehold once they’ve purchased a property, without having to wait two years.

The benefit of this is that landlords should now be able to increase the value of a property with a short remaining lease soon after purchase, and potentially refinance much earlier than was previously possible, which could greatly improve capital returns. (One thing to note is that you can’t take any action until the Land Registry has processed your application and you are formally registered as the owner of the property.)

The second change came into force on 3^rd March, giving more leaseholders of flats the right to manage the property themselves. No permission needs to be sought – the leaseholders simply need to set up their own management company and serve formal notice on their landlord/freeholder. After a set period of time, the management transfers – and under the new regulations there’s no requirement for leaseholders to cover the freeholder’s legal fees.

This makes it much easier for leaseholder to take control if the property is currently not managed well and means landlords can potentially offer a much better standard of accommodation and rental experience to their tenants.

Here are the other key changes in the Act that will strengthen and extend the rights of leaseholders:

• It should become cheaper and easier for some leaseholders to extend their lease or buy their freehold, with the requirement to pay ‘marriage value’ being removed. Currently, the increase in value achieved by extending the lease of a property has to be shared between the leaseholder and freeholder/landlord and the leaseholder. Once this is no longer the case, it will cost some landlords much less to buy or extend their lease. The Government expects to consult on a new method for calculating the cost this summer.
• Standard lease extension terms will be increased to 990 years. Currently, leaseholders only have the right to extend their lease by 90 years for flats and 50 years for houses. This change will give leaseholders much more secure ownership and help protect the capital value of landlords’ leasehold investments.

• Leaseholders will be given the right to buy out the ground rent without having to extend the lease at the same time. This gives landlords greater opportunity to reduce their ongoing costs and potentially make the property more attractive to buyers if they are considering selling.

• A maximum time limit will be set for freeholders to supply the information required when a property is bought or sold. This will make it quicker and easier for landlords to buy and sell leasehold property investments.

• Leaseholders will have greater transparency over service charges – particularly in regard to administration charges and buildings insurance.

• Freeholders who manage their building directly will be required to belong to a redress scheme and leaseholders will no longer be required to pay their landlord’s legal costs when challenging poor practices. Leaseholders will also have a new right to apply to claim their own legal costs from their landlord.

What is the timescale for the remaining measures to be implemented?

The next change likely to come into force is increasing the transparency of buildings insurance fees. A Government consultation on this ran from 2^nd December to 24^th February and feedback is currently being analysed. The Housing Minister previously stated that they plan to bring the provisions on service charges and legal costs into force as quickly as possible.

The remaining changes are expected to come in through the rest of 2025 and 2026, with a draft Leasehold and Commonhold Reform Bill expected to be published in the second half of this year. This would include specific legislation strengthening leaseholders’ rights to extend their lease and buy the freehold, modernising the legal framework of Commonhold that was introduced in 2002.

Once all these elements of leasehold reform have been enacted, it should be quicker, easier and cheaper for landlords to buy, manage and improve the value of their leasehold investments. There will be greater security of tenure, and where freeholders are not meeting their obligations, leaseholders will be more able to hold them to account.

To find out more about protecting your leasehold investment, see our recent article on landlord insurance for leasehold properties.