Landlords and Tenants receive a pre-Christmas update from the Government on its plans for Leasehold and Commonhold Reform

This afternoon, Matthew Pennycook released a written statement on Leasehold and Commonhold Reform dealing with the Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”) and the Government’s further plans to reform leasehold.  The key points made in the statement appear below. 

In summary, the Government intends to move forward with implementing LAFRA 2024 and some parts may be introduced piecemeal early next year.   However, there will be an extensive exercise of secondary legislation and consultations in relation to vast majority of the provisions and so it seems unlikely that these provisions will be brought into force during the course of next year. 

The Government also intends to push forward with more widespread reforms to leasehold, including making commonhold the primary form of homeownership, as recommended by the Law Commission in July 2020. 

LAFRA 2024

• The Government intends to implement LAFRA 2024. However, as drafted, it contains a small number of specific but serious flaws which would prevent certain provisions from operating as intended and which need to be rectified via primary legislation.
• LAFRA 2024 goes far beyond the intended reforms to valuation which undermines the integrity of the amended scheme.
• The Government will take the time necessary to ensure the reforms are fit for purpose.
• Primary legislation is needed to “fix” some of the flaws perceived by the Government, together with an extensive programme of secondary legislation and consultations.

Proposed timings

• January 2025 – remove the 2-year qualification requirement in enfranchisement claims.
• Spring 2025 – introduce changes to the right to manage procedure.
• Consultations during 2025 on:
  • Restrictions on receipt of insurance commissions.
  • Service charges and legal costs.
  • Valuation rates for enfranchisement premiums.
  • Estate management charges.

Further reform of the leasehold system

• The new draft Leasehold and Commonhold Reform Bill is intended to be published in the second half of 2025.
• The central focus of the Bill will be reinvigorating commonhold and a White Paper on reforms to commonhold will be published next year.
• There will also be a consultation next year on the best approach to banning new leasehold flats and the conversion of existing flats to commonhold.
• The Government remains committed to tackling unregulated and unaffordable ground rents and to remove the threat of forfeiture.  It is not clear what framework the Government will adopt for this.
• There will be a consultation on reforms to the section 20 “major works” procedure and the regulation of managing agents.

Today’s announcement builds on statements made in the King’s Speech in July 2024 about the direction of travel on leasehold and commonhold reform.   It provides more detail about the Government’s proposals and timeframes for consultation and implementation.  However, the enormity of this task should not be under-estimated.  A move to commonhold, which has existed since 2004 but has seen hardly any take-up, is a complicated manoeuvre which will involve serious consideration as to how it is funded where existing leaseholders cannot afford to or do not wish to convert to a commonhold structure.  There is also the question of how the market will adjust to new flats being built and let on a commonhold basis rather under the traditional leasehold structure.  There is still much work to be done, but the Government is clearing the way to do so in the new year.  Landlords, tenants and stakeholders in the residential sector will want to keep a close eye on developments.

We are tracking developments on our Essential Residential hub and timeline: Changing landscapes in residential leasehold.  Please contact Lauren Fraser, Laura Bushaway or your usual Charles Russell Speechlys contact if you have any queries.