If you’re a leaseholder, you may have heard about the Leasehold and Freehold Reform Act 2024 which promises to deliver significant changes to how leasehold properties are managed, particularly when it comes to lease extensions. But does that mean you should hold off on extending your lease until the new provisions are in place? Do you wait or start negotiations now given that the market value of the property is only likely to increase in the next 2-3 years?
Firstly I would point out that although the Act received royal assent last year, this was rushed through parliament in light of the early election call, and so there is still a lot of work to be done by way of secondary legislation. The 2-year ownership rule was abolished on 31st Jan 25 (which is great) however we are still some way off the abolition of the marriage value (which could make some extensions cheaper).
What Does the Leasehold and Freehold Reform Act 2024 promise?
Key provisions include:
- Simplified Lease Extension Process
The Act proposes to streamline the process of extending your lease.
- Abolition of the 2 Year Rule – CAME INTO FORCE 31 JANUARY 2025
You no longer have to wait two years before negotiating a lease extension. If the leasehold has less than 80 years remaining, you can extend the lease as soon as you become the legal owner of the property.
- A New Formula for Calculating Lease Extensions
Currently, when extending a lease, the amount you need to pay for the extension depends on the “premium” — a calculation that takes into account the remaining length of the lease and the ground rent. The new legislation proposes a simpler, fixed formula that aims to reduce the financial burden on leaseholders. The actual rates to calculate the premium are not yet known.
- A Cap on Ground Rent
The Act proposes to eliminate the requirement for leaseholders to pay escalating ground rents, which has been a source of frustration for many.
Should You Wait to Extend your Lease?
Here are some factors to consider:
- Timing of the Reforms
It could still take several years before the full impact of the reforms is felt.
- Current Lease Extension Costs
If your lease has less than 80 years left, it’s crucial to understand that the cost of extending it now may be higher than in the future. The marriage value kicks in when a lease is under 80 years, meaning you could face a substantial premium for extending your lease. If you wait for the reforms, you may avoid this cost.
On the other hand, if your lease has more than 80 years remaining, the current cost of extending your lease may not be as high, and you might not want to wait for the reforms if you need to extend soon.
- The Risk of Uncertainty
While the reform is certainly welcome, it comes with a degree of uncertainty. The full details of how the new laws will be implemented are still being ironed out, and there’s a possibility that unforeseen complications could arise. If you need to extend your lease urgently, waiting for the reform could put you at risk of facing further delays or changes that might not be as beneficial as expected.
- The Appeal of the Reformed System
The simplification of the lease extension process and the removal of escalating ground rents are certainly attractive. For those whose leases are nearing the critical 80-year mark, the prospect of a simpler, more affordable lease extension could be highly beneficial in the long run.
However, these changes will only benefit leaseholders once they come into effect, so if you are in a position to extend now and can afford the costs, you might decide that the potential savings aren’t worth waiting for.
- The Pressure of a Short Lease
If your lease is particularly short (for example, under 70 years), you may not want to wait for the reform, especially if you’re looking to sell the property. A lease under 80 years can deter potential buyers, as many mortgage lenders will be reluctant to lend on such properties. Extending the lease now might be necessary to maintain the value of your property, regardless of the upcoming reforms.
Conclusion: Should You Wait?
Ultimately, this depends on your individual circumstances. If your lease is nearing the 80-year mark or is already under 80 years, you may wish to act sooner rather than later to avoid the marriage value cost, which could become a significant burden.
If your lease still has plenty of time left and you’re not in a hurry to extend, then waiting for the reforms could be a prudent choice, as the new provisions could offer a more straightforward and cheaper way to extend your lease.
It’s always a good idea to seek advice from a solicitor or a leasehold expert, who can help you weigh up the pros and cons in light of your situation. Please contact Katie Miller, on 01756 692884 or katie.miller@awbclaw.co.uk if you have any questions regarding your right to extend your residential lease.
Further Reading:
Further Reading:
Leasehold and Freehold Reform Act 2024
RICS Welcomes Progress on Leasehold Reform
Leaseholders: new Right to Manage provisions come into force today!
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