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The 2024 Leasehold and Freehold Reform Act (‘the 2024 Act’) received Royal Assent right at the end of the final session of this Parliament and appeared at the very end of the list of Acts approved in the ‘wash up’ on 24th May 2024.

With the prospect of a new government now imminent it makes sense to consider where we are now and what might be ‘to come’ following the results of the general election on 4th July 2024.

What will come into force now?

Whilst a few parts of the 2024 Act will come into force later this month on 24th July 2024 these are fairly ‘minor’ changes in the greater scheme of things and relate to:

  • restrictions on pursuing rent charge arrears (such that now a demand statement must first be served in a prescribed format at least 30 days before taking any action)
  • an amendment to the BSA to allow flat owner controlled freehold companies and RTM companies the right to recover costs under Schedule 8 of that Act (where otherwise ordinarily the landlord cannot recover costs under the service charge) in relation to the pursuit of a ‘relevant defect’
  • the repeal of Section 125 of the BSA 2022 and its replacement with a new Section 125A dealing with the duties of an insolvency practitioner appointed in respect of a ‘responsible person’ (either an ‘accountable person’ for higher risk buildings or the owner or party responsible for the common parts of a ‘relevant building’)

What is not in force? And when will these provisions become law?

The remaining sweeping changes that the Act promises are not yet in force. A short summary of these appears below:

What does the 2024 Act propose?

The 2024 Act makes big changes to the law on valuation as it relates to leasehold reform calculations (removing marriage value for leases under 80 years) and ‘capping’ for calculation purposes the value of any ground rent paid at 0.1% of the capital value of the property.

There are also the more functional changes in the enfranchisement space, such as changing the basis of statutory lease extensions to 990 years and allowing successive claims without any wait where a claim is withdrawn. The 2024 Act will also remove the two-year wait to qualify for a lease extension.  In addition, the Act will remove the ability of landlords to recover their costs in statutory claims. It also bans the creation of new leasehold houses and places restrictions on transfers out of leasehold land that might otherwise create these. There is also a new right for long leaseholders to buy out their ground rent.

In the field of property management, the 2024 Act also makes some big shifts by dealing with the following areas:

  • Service charge and ground rent demands will need to be in a ‘universal’ prescribed format.
  • Insurance commission will not be recoverable through the service charge, although the cost of the actions taken to place or arrange cover will be permitted.
  • Regulations will cover the prompt provision of information in relation to sales information requests.
  • Estate management charges payable in respect of freehold estates will be brought within the scope of the service charge legislation.
  • There will be restrictions on the enforcement of rent charges (a type of payment similar to ground rent that some freehold land is subject to).
  • Amendments to the BSA 2022 to expand the definition of a ‘relevant defect’ to change this so that the cost of taking ‘relevant steps’ is included in the costs that may be restricted in recovery from a ‘qualifying lease’

What will come into force and when?

A key question for the new Secretary of State for Housing will be to decide which of these other provisions to bring into force and when.

It is clear from the drafting of the 2024 Act that many of its provisions require detailed secondary legislation (statutory instruments) to bring its provisions into force. Some (but not all of these) may need to be referred to parliament.

In particular, the changes in the property management arena will require further detailed regulations and the valuation changes to the enfranchisement legislation cannot be brought into force without the ‘deferment rate’ and ‘capitalisation rate’ being set. This could be done by the Secretary of State but there might also be further consultation or discussion around this.

Predictions as to what will come into force first

It seems most likely that the changes that could be brought into force most quickly will be those relating to the abolition of the two-year rule and the ending of the restrictions against bringing successive claims along with the restriction on the ability of the landlord to recover costs. The reduction in the qualification criteria to 50% for mixed use buildings may also be an early part of any commencing provisions.

The more detailed changes relating to valuation will have to wait and the best ‘authority’ on this as the moment (the Baroness Scott of Bybrook letter given in answer to a parliamentary question in the Lords) suggested that the government would want to wait before bringing these in to give the market time to adjust. Of course, a new government may take an entirely different view.

How long will this be in practice? As the 2024 Act is on the statute books the new government could start work on commencement provisions in the first session of the new parliament and so these changes might come into effect towards the end of this calendar year or during the start of 2025.

Depending on who wins the election will determine the likely approach – the Conservatives have promised more of the same programme of reform to include capping ground rents for existing leases at £250 and phasing them out. Labour have indicated a willingness to adopt the fuller recommendations of the Law Commission’s report on enfranchisement. If this were to be done, then this would see a much larger piece of reforming legislation which would be a bigger parliamentary exercise. As to how far up the legislative agenda this might be remains to be seen.

What else might happen?

Other questions remain, such as whether freeholders will bring a challenge under the Human Rights legislation – which could delay or even change the course of implementation and there is the question of how much time should be given to allow the market to adjust. The first of these may see aspects of the Act held up by Court challenges, while the second could see a deliberate preference for a gradual implementation in order to give the market, including freeholders and pension funds, time to adjust to the new post-2024 Act normal.

There is also the possibility (as has happened with other legislation) that some of the Act’s provisions may take a long time to be brought into force or indeed perhaps never be enacted (an example being the ‘Right to Enfranchise Company’ under the 2002 Act), where once considered, the full detail of bringing these provisions into force was ‘shelved’ for a variety of reasons. However, it seems to me very unlikely indeed that none of the 2024 Act’s provisions will come into force, but this might just happen for some provisions where more detailed regulations are required or they may take a very long time to come into force.

And finally

The above is of course just speculation – although it seems logical that the more straightforward aspects of this legislation will come into force first. However, we will have to wait for the outcome of the election on 5th July 2024 and the King’s Speech on 17th July 2024 to find out what the new government has in store for the world of residential leasehold.

 

Mark Chick

3rd July 2024

Mark Chick Senior Partner   +44 (0)20 7079 2415


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