Legal Update – Lease renewals
On 24 May this year, Royal Assent was given to the Leasehold and Freehold Reform Act 2024 (LFRA 2024) in what is likely to be one of the last bills passed by the current government. Under this primary legislation, the laws around lease renewals as well as collective enfranchisement will be amended when it comes into force. Although no definitive date has yet been announced, it is thought that the LFRA 2024 could be effected from 2026.
Under the previous legislation provided by the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993) among other later legislative amendments, tenants have an individual statutory right to extend their lease via obtaining a new lease that extends the term of their previous lease by 90 years in return for a premium paid to the freeholder/landlord. In view of most high street lenders being increasingly unwilling to deal with any leasehold property with fewer than 70 years left on their term, this right to extend the term of leases however many times as required was and is crucially important for many people.
Collective enfranchisement was also introduced, whereby tenants of individual flats with leases longer than 21 years (“long leases”) could act together to collectively acquire the freehold of their building from their freeholder/landlord, subject to a number of other conditions.
The LFRA 2024 addresses a number of longstanding issues faced by leaseholders and freeholders, including improving transparency of estate management, service and rent charges and banning most long residential leases for houses. However, this article will cover the amendments made to lease renewals and extensions for residential flats. These include the following:
Previously, in order to qualify for the statutory right to extend your lease, tenants were required to have owned their lease for two years. Under the LFRA 2024, this requirement will be abolished, so that a statutory lease extension can be applied for immediately and at any time thereafter.
Tenants may now, if an attempt to extend their lease has failed, bring another such claim within 12 months after the failed first attempt, this being prohibited under the previous legislation.
In terms of the lease term extension itself, the previous 90-year extension for flats has been increased to a 990-year extension for houses and flats, ensuring greater security for tenants. As under the previous legislation, the extension will be granted in return for a premium whilst rent stays at a peppercorn, ie. at a value so low that it is effectively and legally zero.
Although freeholders/landlords will still have a right to obtain possession of the tenant’s premises for redevelopment grounds, redevelopment will no longer be able to be used to oppose and block a request by the tenant to extend their lease as explained above.
There are also specific measures aiming to make lease renewal/extension more affordable, including revised valuation methods for the property premium payable and the tenant only being required to pay for the freeholder’s/landlord’s costs in very limited circumstances
For those tenants who possess shared ownership leases, the above lease extension rights under the LFRA 2024 will also cover them.
Taken together, the provisions for lease renewals/extensions within the Leasehold and Freehold Reform Act 2024 represents a positive step toward further empowering tenants and ensuring greater fairness and transparency in property ownership. By addressing longstanding issues, it aims to create a more equitable system for all involved. Overall, the Act aims to empower and enhance leaseholders’ rights.
For further details and any advice which you may need, please contact a member of our specialist commercial property team on 020 8949 9500 or email acopson@pearsonhards.co.uk.