Implementation of the Leasehold and Freehold Reform Act, one of the largest ever changes to the way conveyancers and landlords operate in this area, is underway. The first stages of the bill have been implemented, with others coming down the track.
Consultation on measures to strengthen leaseholder protections over charges and services and regulation of property managing agents is ongoing for the next month, but the general direction of travel is clear.
Most of the details of the act – and how it will operate – have been revealed, but many landlords and conveyancers are unprepared for the scale of change ahead. This could have major implications for landlords’ legal and financial positions, as the bill is set to overhaul or abolish elements of the existing leasehold system.
We all welcome more transparency and greater security for tenants in the leasehold system, but it’s important that landlords understand that their rights and even the value of their property may change significantly as further reforms come in. It’s our role to make sure they fully understand these changes, and get the right advice to navigate them.
What’s in the bill?
The Leasehold and Freehold Reform Act will essentially ban the granting of new leaseholds on houses, and make it easier for leaseholders to extend their lease or buy their freehold.
Marriage value payments (the additional cost a leaseholder pays to their freeholder when extending a lease with an unexpired term of under 80 years) will be abolished, and the standard lease extension term will be increased to 990 years with a peppercorn ground rent (no ground rent payable) upon payment of a premium.
The government has also made more leaseholders eligible to extend their lease or buy their freehold by abolishing the rule which required them to wait two years after purchasing their property before being able to request changes.
There will be greater transparency requirements too. Leaseholders will have new rights to request information about service charges, the management of their building, administration charges and buildings insurance commissions.
How conveyancers should respond
The abolition of marriage value will remove an important revenue stream for landlords, and reduce property values, as well as potential returns on investment from signing long-term leasehold agreements. This will be damaging for all in the industry, but especially institutional investors and pension funds with stakes in numerous properties.
Many landlords and potential landlords aren’t fully aware of this change, which could have severe financial consequences on such a long term deal. It’s important that conveyancers ensure that landlords, especially those who are new to the industry, are aware of these changes before entering new leasehold agreements to prevent any unanticipated consequences later down the line. As these reforms come into force, landlords could see their properties devalued rapidly, which should be accounted for in any new deal.
There are other areas conveyancers should flag too. We could see more complex title investigations where a Right to Manage (RTM) Companies are formed but not noted on the registered title, so conveyancers should always ensure that their landlords or investors include this information in any pre-sale packs provided.
It’s also important that tenants understand their responsibilities when entering leasehold agreements, to prevent disputes later on. For example, when tenants form an RTM company, they should be aware of their obligations to sort areas like obtaining adequate building insurance.
Leaseholds can often be complex and difficult to decipher, and getting ahead of the new rules is essential, so both conveyancer and landlord have plenty of time to gather the information required and avoid falling foul of the law. An audit of all leasehold property may be useful for larger scale landlords and investors, to iron out any discrepancies in existing agreements and encourage tenants to extend their leases now, before the reforms are implemented.
Most important is to reassure landlords and encourage them to start preparing for the reforms now, before they fully come into force. Encouraging them to continue to seek quality, specialist legal advice is an important part of this.
Every leasehold agreement is complex and different to the last one. Only experts can advise on the implications of the new Act on individual properties; as conveyancers, we have a duty to ensure that all landlords understand this and don’t take a ‘DIY’ approach to the new act. With so many reforms underway, the financial and legal stakes are too high.
Sarah Parkin is a Leasehold Enfranchisement Specialist at Ramsdens Solicitors.
2 responses
How about people are just advised not to go anywhere near leasehold? Bonkers that people think it’s ok to use other people’s money (lenders) to buy an ‘asset’ which dwindles over time and is a one-sided agreement entirely in favour of the Landlord.
Most conveyancers can’t unpick the devil in the detail so you will only know when things go wrong where that devil has lain in wait . . .
Genius
Let all but Freehold houses. Flaw in the plan – too expensive and don’t exist for FTB’s in Greater London.
There’s nothing wrong with flats just the regulation on managing the blocks – no experience or qualifications required. Something that required zero debate to pass unless in the LHRA unless of course you are an idiot or worried about a backlash.
All the whining about short Leases is nonsense. You bought your biggest asset but didn’t know what you were buying – Zzzzzz.
Like buying a Royals Royce and not knowing it only does 10MPG !!