Amidst the frenzy of media coverage about the recent general election, you may have missed one of the legislative changes that was pushed through parliament ahead of the break for campaigning.
The Leasehold and Freehold Reform Act became law on 24th May, although implementation of the majority of the Act is likely to be done in stages in the coming months now a new government has been put in place.
The new Act will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges.
The Act will also remove barriers for leaseholders to challenge their landlords’ unreasonable charges at Tribunal and will further ban the sale of new leasehold houses other than in exceptional circumstances, as well as excessive buildings insurance commissions for freeholders and managing agents.
In addition, it will scrap the requirement for a new leaseholder to have owned their house or flat for two years before they can buy or extend their lease and grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders
And the new reforms will make it easier for leaseholders to take over the management of their property if they want to. Leaseholders in some buildings are barred from taking over the management of the site or buying its freehold if more than 25% of its floor space is commercial – such as shops or offices on the ground floor. But this limit will be increased to 50% to enable more homeowners to access Right to Manage or the right to a collective enfranchisement.
So, what impact will the new Act have on property investors?
In general, these reforms should be seen very positively. You may work with clients who own the freehold on multi-unit blocks for whom the changes could create some additional considerations, but in general newer leasehold agreements have been more aligned to the details contained within the Act, which is designed to tackle legacy arrangements.
Most investors are likely to welcome the reforms, which should help to instil greater confidence for those purchasing a leasehold property. Whether your clients are themselves considering buying a leasehold property, or looking to sell one, these changes will help to remove much of the uncertainty.
In addition, you are also likely to have investor clients who currently own a leasehold property who may want to consider extending the lease to strengthen the value of the property and the reforms will certainly make this easier. It’s worth using this as an opportunity to make contact to discuss their plans and whether you can help them to raise the finance they might need. A bridging loan could provide the funding to increase a lease, or a light or heavy refurbishment bridge such as those available from Castle Trust Bank could help fund any renovations on a property to help increase its value and provide your clients with a more robust property investment.
