The Leasehold & Freehold Reform Act 2024

Since the Leasehold & Freehold Reform Act 2024 received Royal Assent, there has been little substantive progress in terms of implementation. The Act remains largely uncommenced, with the majority of its valuation-related provisions still dependent on secondary legislation, including the introduction of prescribed deferment and capitalisation rates, including the potential removal of marriage value.

 

At the time of writing, no commencement dates have been confirmed for the core valuation reforms. Industry consensus now broadly accepts that late 2026 is the earliest realistic timeframe, with 2027 to 2028 increasingly likely for full or partial implementation. This reflects both the technical complexity of the legislation and the change in Government, which has inevitably slowed progress.

 

Importantly, until secondary legislation is confirmed and commencement dates are formally announced, the existing statutory valuation framework continues to apply, including marriage value and established market-derived rates.

 

The Leasehold & Freehold Reform Act 2024 has already been the subject of judicial review proceedings brought by a number of freeholders, institutional investors, estates and representative bodies. 

 

These challenges have focused primarily on:

 

 

The initial judicial review has now been determined by the High Court. However, further appeals have been lodged, and the appellate process remains ongoing. As a result, the legislation continues to be subject to legal scrutiny, and the Government has, to date, refrained from progressing the core valuation reforms through secondary legislation.

 

Until the appeal process is concluded and legal certainty is achieved, there remains a realistic possibility that aspects of the Act could be delayed, amended, or revisited, with final clarity potentially taking several years.

 

Human rights considerations, particularly under Article 1 of the First Protocol of the European Convention on Human Rights (A1P1), have formed a substantive part of the legal challenges brought against the Act. While the High Court has now considered these issues at first instance, they remain live and unresolved due to the ongoing appellate process.

 

A central issue continues to be whether the cumulative effect of the valuation reforms, including the abolition of marriage value and the prescription of valuation rates, would amount to an uncompensated interference with property rights.

 

The Government has acknowledged that the financial impact on freeholders could be substantial, but has not yet published any detailed impact assessments linked to the final valuation methodology. Until the prescribed rates and full valuation framework are known, the scale of any potential losses cannot be quantified, which remains a critical factor in determining the scope and viability of any future human rights claims.

 

In practical terms:

 

 

 

Both leaseholders and freeholders should therefore take specific, case-by-case advice, rather than relying on headline reforms that are not yet in force.

 

While the Leasehold & Freehold Reform Act 2024 represents one of the most significant proposed changes to leasehold valuation in decades, it is now clear that implementation will be protracted and subject to ongoing legal and legislative scrutiny.

 

The combination of uncommenced valuation provisions, unresolved secondary legislation, concluded judicial review proceedings and ongoing appeals means that the market is likely to continue operating under the existing statutory valuation framework for the foreseeable future. Any transition to a new regime will depend not only on Government policy, but also on the resolution of legal challenges and the publication of a final, workable valuation methodology.

 

As valuers, our role remains to advise clients based on what is currently law, rather than anticipated reform, while closely monitoring legislative and judicial developments. We will continue to update our guidance as greater clarity emerges and as the Government progresses the necessary secondary legislation.

 

If you are considering a lease extension, collective enfranchisement, or require advice on the potential impact of the reforms on an existing portfolio, we strongly recommend seeking bespoke valuation advice based on your individual circumstances and current law.

 

If you require advice on a lease extension, collective enfranchisement, or the potential impact of the Leasehold & Freehold Reform Act 2024 on your specific circumstances, please feel free to contact us. We are happy to provide clear, practical guidance based on current law and the latest market and legal developments.

The Leasehold & Freehold Reform Act 2024 achieved Royal Assent on 24th May 2024. This legislation introduces significant changes affecting leaseholders with short and medium-term leases, as well as freeholders with ground rent portfolios. While many view these reforms at face value are beneficial for leaseholders, the full implications remain to be seen as the revised valuation method and proposed prescribed rates to be implemented by the Government have not yet been decided nor disclosed, all the proposed changes will need to go through secondary legislation once the new Government is elected. This uncertainty makes it an impossible task to advise accurately on the impact this will have on future lease extensions together with active lease extension & freehold enfranchisement claims. 

1.       Marriage Value Abolition: Marriage value payments have been eliminated, allowing leaseholders to benefit entirely from the marriage value.

2.       0.1% Ground Rent Cap: Although freeholders are still permitted to collect ground rent in accordance with the terms of the lease, for the purposes of future valuations, the ground rent will be capped at 0.1% of the freehold vacant possession value of the flat. 

3.       990 Year Extension: Leases can now be extended up to 990 years, a significant increase from the previous 90-year extension limit.

4.       Two Year Ownership Requirement: The two-year ownership rule for qualifying to extend a lease has been abolished, making it easier for leaseholders to apply for extensions.

5.       Collective Enfranchisement Claims: In collective enfranchisement claims, freeholders can be compelled to retain non-participant flats or commercial areas. Leaseholders can now pursue a claim if they constitute at least 50% of the flats, as per the existing rule.

6.       Commercial Property Threshold: The threshold for the commercial property component in enfranchisement has been increased from 25% to 50% of the floor area. This change will enable many mixed-use buildings to qualify for enfranchisement.

7.       Cost Responsibility: Freeholders will be required to bear their own costs, except in cases involving “low-value claims”. A limit on the costs a freehold is entitled to recover will likely be decided at a future date. 

8.       Prescribed Rates: The deferment and capitalisation rates will be prescribed by the Minister. Although the specific method for setting these rates is not yet defined, it has been indicated that they will align with “market rates” and be reviewed every 5-10 years.

The abolition of marriage value is intended and expected to lower the cost of extending or enfranchising leases under 80 years. However, changes in the deferment or capitalisation rates could offset these savings significantly. For leases exceeding 80 years, costs could increase if the deferment rate is lowered below the current 5% which is currently used in the vast majority of valuations.

The determination of the deferment rate is crucial, especially given the potential departure from the 2002 Sportelli rate of 5% for flats and 4.75% for houses. The market rate is a contentious topic, with experts suggesting the rate may be prescribed below the current rate of 5%. Several experts including Professor Tim Leunig, an economist and government advisor, proposed a deferment rate of 3.5% during a Bill Committee session on January 26, 2024, this gives an indication as to the rate the Government will be pursuing within the Secondary Legislation as advisors and civil servants do not change even if a new Government is elected.

For leases with less than 80 years remaining (where marriage value was previously payable), a deferment rate of 3.5% could neutralize most or all of the premium reduction from the abolition of marriage value, therefore cancelling out any potential of saving on the premium payable and maintaining the status quo. Conversely, a deferment rate above 3.5%, such as 4%, would result in slightly lower premiums. For leases over 80 years, lowering deferment rates below the current level of 5% will result in higher premiums being paid by those leaseholders. 

This Act brings significant changes to leasehold and freehold valuation, and its impact will depend largely on the forthcoming determinations of the prescribed rates, which will not be introduced in any event until secondary legislation and commencement dates are announced by the new Government, which are already being predicted to be 2025 or 2026 at the earliest.

As secondary legislation has not yet taken place and it is possible some, or many of these changes will be amended or completely overturned. 

There was significant concern from many members of Lords that the Bill had not been properly scrutinised and was not in an acceptable form. 

If the proposed amendments are implemented and no compensation is factored into the new valuation method, this will substantially reduce the value of freeholders’ portfolios. It is almost certain that the freeholders that have had their property rights taken away from them will make claims against the government in the ECHR under Article 1. 

The potential losses cannot be quantified until second legislation and until the prescribed rates have been set. Once the losses can be quantified, claims will then be made against the government for loss of property rights, if the ECHR rule in favour of landlords, the law could ultimately be overturned. We will likely see many years of challenge and litigation in the future.    

Although the Leasehold & Freehold Reform Act 2024 has received Royal Assent, historical precedents such as the Commonhold & Leasehold Reform Act 2002 show that full implementation of legislative changes can take many years. There are still parts of the Commonhold & Leasehold Reform Act 2002 that have still not been enacted as law over 20 years since the implementation of the act. 

Currently, we cannot provide definitive advice until the government publishes the final details of the prescribed rates, which will take time. We are only able to advise you of the various valuation changes that have been mentioned. Whilst it is likely one of the aforementioned methods will be applied, there are still no absolute guarantees. 

We are committed to keeping all our clients informed about any developments that may affect their individual lease extension, freehold enfranchisements or portfolio values and providing you with guidance on the impact of the new valuation methods once these have been confirmed. 

Please feel free to contact us for specific advice on your individual circumstances