Following the ministerial statement by Matthew Pennycook on Thursday 21 November, we now have more of an idea of the timelines for the implementation of the Leasehold and Freehold Reform Act (‘LAFRA’), the need for secondary legislation and the Government’s plans for further consultations. We also know that the Government is committed to finally bringing what it describes as “the feudal leasehold system” to an end and making commonhold a viable alternative.
Among the forthcoming changes, we are promised that from January 2025 leaseholders will no longer have to wait two years after the point of purchasing their property before exercising their right to extend their lease, (or buy the freehold to a leasehold house) while a package of measures will also be introduced early next year to expand access and reform the cost rules and voting rights where leaseholders claim the ‘Right to Manage.’ At the time of writing we do not have clarity on the proposed commencement mechanism or dates.
This will be followed by a host of consultations on matters such as: the detail of 2024 Act’s ban on buildings insurance commissions; making it easier to challenge service charge costs; setting the valuation rates used to calculate the cost of enfranchisement premiums; implementing new consumer protection provisions; and on banning leasehold flats. The government will progress its Draft Leasehold and Commonhold Reform Bill, with a White Paper due to be published in early 2025, and publication of the Bill itself in the second half of 2025.
One notable omission from the ministerial statement is the ongoing Human Rights issues that have been raised in relation to LAFRA, which is an issue the Government will have to grapple with soon. In total, seven freeholders have commenced legal proceedings to try to sue the Government through the High Court to stop, or delay, the changes taking effect, on the basis that the Act is incompatible with the right to ‘peaceful enjoyment’ of property under the Human Rights Act 1988.
A High Court hearing will be held in January 2025 to determine whether the claimants should have permission to apply for judicial review. The challenge for the Government in bringing into force legislation like the LAFRA is to strike a fair balance between the interests of the two sets of property owners. The question of whether this balance has been correctly struck will depend on the extent to which the legislation seeks to ‘control the use’ of these property assets (freeholds) balanced with a consideration of whether these measures go so far as to ‘deprive’ the owner of the use of them altogether.
The LAFRA certainly seeks to ‘shift the dial’ considerably from freeholders to leaseholders and gives force to the stated aim to make enfranchisement ‘cheaper and easier.’ The Act contains a declaration of compatibility with Human Rights Act and the Law Commission considered this aspect when setting out its proposed options for reform in this area. Ultimately, the outcome will depend on whether the Government can show that the interference with property rights is justifiable – if not then the Court may rule that the freeholders have a viable case to proceed to judicial review.
The Residential Freehold Association has previously said plans to cap ground rent and regulate ground rent could leave the Government open to compensation claims in the region of £30 billion. There is nothing about controlling ground rent in LAFRA and this is something that Matthew Pennycook promises will be looked at in the new Leasehold and Commonhold Reform Bill that the Government proposes. However, the potential scope for compensation if the legislation’s changes are too extreme once implemented must be in the back of the Government’s (and particularly the Treasury’s) mind.
This may well be another reason (aside from the complexity of the legislation itself and the recognised errors requiring primary legislation to fix) that the Ministerial Statement indicates that the earliest changes will begin to happen on the valuation side of things is in the summer of 2025. This is when the Government plans to consult on the proposed capitalisation and deferment rates as the first part of ‘fixing the act’s serious flaws’ before approving secondary legislation.
Reading between the lines, all of this indicates a much longer timescale for valuation reform, maybe a further year or two from the initial review next summer, while there is the potential that any reform will be rolled into the Leasehold and Commonhold Reform Bill, which may not be law until the end of this Parliament in 2029.
Whilst we don’t know all the details, it is highly likely that the Human Rights challenges, the need to consult and the requirement to make changes to the LAFRA with primary legislation will considerably delay the implementation of the valuation provisions in the 2024 Act.
This also raises a wider question – does Labour see the LAFRA as a viable piece of legislation, or will it come to view it as more of a hindrance than a help? After all, the Act was rushed through in the ‘wash up’ and Labour may feel their hands have been tied. If so, we could see a situation where the government scraps the LAFRA altogether and proceeds with its own piece of consolidating legislation, which could better achieve its aims to reinvigorate commonhold, abolish ground rents and enact sweeping valuation reform.
Only time will tell but the clock is now ticking on this session of Parliament, and with at least some clarity that the valuation reforms are some way off, those looking to enfranchise can now have slightly more certainty as to whether now is the time to act.
As ever, watch this space for further developments as we move into the new year.
Contact our Landlord & Tenant team
If you have a query concerning leasehold property, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on +44(0)20 7631 4141.
The above is accurate as at 20 December 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
